German recovery at riskas oil prices soar
12 October 2004 , BERLIN - German investor confidence dropped sharply in October amid worries that soaring oil prices could slow the pace of growth in Europe's biggest economy, a key economic indicator released Tuesday showed. Compiled by the Mannheim-based Centre for European Economic Research, the so-called ZEW index declined from 38.4 points in September to 31.3 points in October for the third consecutive monthly fall. The index now stands at its lowest level since June last year. The drop in the index
12 October 2004
BERLIN - German investor confidence dropped sharply in October amid worries that soaring oil prices could slow the pace of growth in Europe's biggest economy, a key economic indicator released Tuesday showed.
Compiled by the Mannheim-based Centre for European Economic Research, the so-called ZEW index declined from 38.4 points in September to 31.3 points in October for the third consecutive monthly fall.
The index now stands at its lowest level since June last year. The drop in the index comes in the wake of data pointing to a slowdown in the German economy with unemployment remaining higher than 10 per cent, production and industrial order books contracting, domestic demand stagnating, exports slipping and economists starting to revise down their third-quarter growth estimates.
"The reason for increased pessimism lies in the oil price which continues to rise sharply, and the expectation that global economic dynamism could slacken," the ZEW said when releasing its index, which seeks to measure expectations over a six-month period.
With oil prices having surged by more than 60 percent this year, the institute said that those responding to its survey were assuming a slight slowdown of economic growth.
The fall in the ZEW's October index was greater than forecast by economists who had expected the index to come in at about 36.5 points this month. Based on a survey of 297 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.
"Recently published data on German order inflow and export growth might indicate that demand for German export goods has begun to drop off," the ZEW said.
"Unfortunately, domestic demand in Germany has failed to reinvigorate the economy to date, thus providing no compensation for declining external demand," it said with economists concerned that the country's export machine, which has been the key motor for growth, might lose steam before domestic demand has picked up.
Figures released last week by Germany's statistics office showed the nation's trade surplus shrank in August to its lowest level in eight months, while the Economy Ministry said output slumped 1.0 percent, which was about double the fall forecast by economists.
Data released Tuesday showed industrial production in France, the 12-member eurozone's economy falling month-on-month 1.9 percent in August.
Moreover, the raft of weak economic data in Germany and among its partners in the eurozone is likely to add to analysts' expectations that the European Central Bank will keep interest rates on hold well into the new year.
In a note to clients following the release of the ZEW indicator, economists at Germany's Commerzbank said that while the country's economic expansion was likely to continue, a strengthening of the economic dynamic was unlikely in the short term.
Indeed, despite the investors' downbeat view of the economic outlook six months down the track, those responding to the ZEW survey were less pessimistic about the current economic situation.
The ZEW gauge measuring current economic conditions rose from - 61.5 points to -58.9 points.
The increase in the current economic conditions indicator came against the backdrop of an ongoing shake-up in German industry with the giant retailer KarstadtQuelle AG and carmakers Volkswagen and General Motors' owned Opel locked in tough talks with unions about rolling back workers' benefits in a bid to reduce costs, including possible job cuts.
In line with the German index, the ZEW indicator measuring economic sentiment in the eurozone also dropped again in October falling 7.1 points to 37.6 points. The corresponding indicator for the eurozone's current economic situation increased further from - 27.3 points to -26.0 points.
Subject: German news