German investor confidence plunges

9th November 2004, Comments 0 comments

9 November 2004 , BERLIN - German investor confidence plunged in November, a key economic indicator released on Tuesday showed, adding to the growing gloom about the outlook for Europe's biggest economy. Compiled by the Mannheim-based Centre for European Economic Research, the so-called ZEW index plummeted from 31.3 points in October to 13.9 in November amid worries that high oil prices and a strong euro will setback the country's economic recovery. "The reasons for this markedly increased pessimism may in

9 November 2004

BERLIN - German investor confidence plunged in November, a key economic indicator released on Tuesday showed, adding to the growing gloom about the outlook for Europe's biggest economy.

Compiled by the Mannheim-based Centre for European Economic Research, the so-called ZEW index plummeted from 31.3 points in October to 13.9 in November amid worries that high oil prices and a strong euro will setback the country's economic recovery.

"The reasons for this markedly increased pessimism may include an expected worldwide economic slowdown and the very distinct appreciation of the euro, which has taken place recently and which could prove a burden for Germany's external trade", the ZEW said in releasing the report.

"In conjunction with restrained domestic demand and persistently high oil prices the experts expect German economic activity to slow down over the medium term," the institute said.

It was the fourth consecutive monthly fall in the index, which stood at 38.4 points in September and follows the release of a string of downbeat German data in recent weeks, which have served to cast a shadow over the nation's economic prospects in the coming months.

Indeed, the optimism which emerged among economists 12 months ago about Germany's economic performance this year has faded with figures showing industrial production falling, order books contracting, retail sales declining and unemployment struck at more than 10 percent.

Only last week European Central Bank chief Jean-Claude Trichet warned that the outlook for Germany and its eurozone partners "is surrounded by continuing uncertainty."

In particular, his comments follow this year's more than 50 percent jump in oil prices and the recent strong performance by the euro, which this week hit a record high that was just short of the key USD 1.30 mark.

While signs that higher energy costs are already leading to a jump in consumer prices, European economists and business leaders are also concerned that a strong euro might derail the eurozone's export machine which has been the key force behind economic growth.

The drop in the November ZEW index was far more than forecast by economists who had expected the index to come in at about 30 points this month and as a consequence will add to fears that the German economy is slowing faster than previously expected.

Data to be released Thursday is tipped to show growth in Germany slowing during the third quarter to 0.3 percent, after it reported 0.5 percent growth in the second quarter.

Despite the ZEW's drop, Ralph Solveen, economist with Commerzbank AG, said the continuation of Germany's economic expansion remains the most likely scenario with the country's exports further profiting from global demand.

The fall in the November ZEW report also drove the index, which measures business expectations six months into the future, down below its historic average of 34.6 points.

Based on a survey of 304 institutional investors and analysts, the ZEW survey acts as a curtain raiser to the release later in the month of the more broadly based and closely watched German Ifo business confidence survey.

But despite the signs of concern about the outlook for German growth six months down the track, those responding to the ZEW survey took a more positive view of the current economic situation with the indicator measuring current conditions rising from minus 58.9 points to minus 57.8 points.

The ZEW indicator measuring investor confidence in the 12-member eurozone mirrored the results for the German index.

While the indicator gauging economic expectations in the currency bloc dropped 15.5 points to 22.1 points in November, the current economic situation conditions indicator rose from minus 26.0 points to minus 25.8 points.

DPA

Subject: German news
 

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