Ukraine crisis sours German investor sentiment

15th April 2014, Comments 0 comments

The Ukraine crisis and uncertainty about the economic fallout, are hitting the investment climate in Germany, pushing it to the lowest level for eight months in April, a survey found on Tuesday.

The widely watched investor confidence index calculated by the ZEW economic institute fell by 3.4 points to 43.2 points in April.

That was the lowest level since August 2013, it said in a statement.

This was the fourth straight monthly drop in a row and steeper than analysts had been expecting.

"The cautious expectations in this month's survey are likely to be caused by the Ukraine conflict, which still creates uncertainty," said ZEW president Clemens Fuest.

"Furthermore, the slight decline in economic expectations has taken place against the backdrop of a very positive evaluation of the current economic situation in Germany," Fuest said.

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 rose by 8.2 points to 59.5 points in April, its highest level since July 2011.

A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable.

"The crisis in Ukraine is continuing to sow uncertainty among financial analysts," said Berenberg Bank economist Christian Schulz.

The fourth consecutive monthly decline "points to a slowdown in German economic momentum over the coming six months, but clearly not to a new stagnation or even recession," Schulz said.

The undercurrent remained firm, he said.

The part of the index reflecting the immediate outlook had risen to the highest level since July 2011.

"The economic expansion may be still be strengthening further at the start of the second quarter," the expert said.

But Germany is more exposed to Russia and Ukraine via trade and energy supply links than other western European countries, he noted.

Nevertheless, Germany was in the best position to deal with the fall-out from the Ukraine crisis, he added.

"And that may act as a shield for the eurozone recovery overall."

ING DiBa economist Carsten Brzeski said "the geopolitical conflict close to Germany's backyard, concerns about the Chinese economy and the recent equity market correction have clearly dented investors' optimism."

After the excellent start to the year, the German economy was now starting to feel some headwinds, Brzeski said.

"More and more gusts of wind, particularly from the East, could easily disturb real spring fever on the island of happiness," Brzeski warned.

© 2014 AFP

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