German investor confidence post sharp drop: ZEW

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German investor confidence has plunged this month because of eurozone debt worries and fears that austerity measures will hurt growth, a closely watched survey showed Tuesday.

The closely watched but volatile financial sector indicator fell by 17.1 points to 28.7 points, well below an average analyst forecast for a drop to 42.5 points.

"Economic sentiment is weakened by the uncertainty about the future developments of the debt crisis and the perspective of necessary cuts in public expenditure in EU-member countries," a statement said.

This was the lowest level for the index since April 2009, when it stood at 13 points, and represented "a worrying sign for the future" Capital Economics senior economist Jennifer McKeown said.

It was also the sharpest drop since October 2008, she noted.

The survey of 279 analysts and institutional investors is now close to its long-term average of 27.4 points, the data showed.

But "despite the decrease of the economic expectations, the economic outlook still remains positive," ZEW said.

"The current recovery is still fragile. Fiscal policy is therefore well advised to define necessary consolidation measures now, but not to implement them until 2011," ZEW president Wolfgang Franz said.

McKeown said the latest survey was "another sign that fears about peripheral debt are damaging sentiment towards core euro-zone economies."

She referred to debt in countries on the eurozone's periphery like Greece, Ireland, Portugal and Spain.

ING senior economist Carsten Brzeski added that the ZEW index "now seems to capture the full fallout on sentiment.

"The eurozone's bail out package and the ECB's latest measures to support bond and money markets have not, yet, been sufficient to stabilise confidence," he said.

© 2010 AFP

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