Sharp drop in German investor sentiment in August: ZEW

11th August 2015, Comments 0 comments

Investor sentiment in Germany fell sharply in August due to persistent geopolitical uncertainty clouding the outlook for Europe's top economy, a leading survey found on Tuesday.

The widely watched investor confidence index calculated by the ZEW economic institute sank 4.7 points to 25.0 points this month, the lowest level since November 2014, ZEW said in a statement.

It was the fifth monthly decline in a row, even as analysts polled by financial services company FactSet had been expecting a rebound this month to 31.5 points.

"The German economic engine is still running smoothly. However, under the current geopolitical and global economic circumstances a substantial improvement of the economic situation in Germany over the medium term is improbable," said ZEW president Clemens Fuest.

"That is why economic sentiment has declined."

For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

The sub-index measuring financial market players' view of the current economic situation in Germany improved slightly in August, ZEW said, rising 1.8 points to 65.7 points.

Economists said a relative respite in the Greek crisis had not put German investors' minds at ease.

"This month's fall in ZEW investor sentiment suggests that, despite progress in Greece's negotiations with its creditors, investors are increasingly worried about Germany's recovery," James Howat of Capital Economics said.

"The drop in the index echoes weakness in recent activity data, including industrial production and the PMI, suggesting that the German recovery will not gather much pace."

Stefan Kipar of BayernLB said that beyond Greece, the slowdown in the Chinese economy and the possible negative impact of an impending US hike in interest rates, particularly on emerging economies, had weighed on investors' moods.

"However the decline in economic outlook in August should not be taken too seriously," he said, noting that the indicator for Germany was still relatively high on average.

"An increase in momentum in the coming quarters is not to be expected but neither is a decline in the rate of economic growth."

Germany will release its preliminary official estimate for second-quarter growth on Friday.

The economy expanded 0.3 percent in the first quarter. Analysts polled by FactSet said growth was likely to have gathered pace during the April-June period to 0.5 percent, despite a recent drop in industrial production that dampened expectations.

© 2015 AFP

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