German investor sentiment slumps further in July: institute

13th July 2010, Comments 0 comments

German investor confidence dropped sharply in July for the second month running as investors felt Europe's biggest economy was running out of steam, the ZEW economic research institute said Tuesday.

ZEW's closely watched but volatile financial sector index fell to 21.2 points from 28.7 points the previous month, for the lowest level since April 2009 and below its long-term average, a statement said.

Analysts surveyed by Dow Jones Newswires had expected the index to fall but not as sharply.

UniCredit chief German economist Andreas Rees noted it was the eighth drop in the past nine months and meant that "a slowdown at the beginning of next year (or possibly somewhat earlier) has become increasingly likely."

In June, the indicator had plunged from 45.8 points in May amid fears that a German austerity packaged aimed at curbing excessive public deficit and debt would undercut economic growth.

In April, the ZEW reading stood at 53 points.

"Until the end of this year, the potential for further improvements of the German economy seems to be widely used up," the ZEW institute said.

"Particularly, the crisis in sovereign debt and the resulting need for consolidation of budgets in various countries seem to have contributed to the subdued economic expectations," it added.

While investors appeared nervous about the future, they seemed happier with the current economic environment in Germany, however.

A sub-indicator that measures the current situation improved sharply, gaining 22.5 points to reach positive territory for the first time since July 2008.

Germany's economy has rebounded faster than many expected from an historic post-war recession and Berlin forecasts full-year 2010 growth of 1.4 percent, with several international institutions predicting even better figures.

But Tuesday's data "suggests that peripheral (eurozone member state) debt worries and banking sector problems might stem the recovery in the eurozone's largest economy before long," Capital Economics senior economist Jennifer McKeown said.

"The fall in the headline ZEW (index) suggests that worries about the banking sector have not really been alleviated by the promise of stress tests to come," she added.

Nearly 100 major European banks are undergoing tests to determine if they can withstand a major shock like that which followed the collapse of the US investment bank Lehman Brothers in September 2008.

The results of the tests are to be released on July 23.

© 2010 AFP

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