German investor confidence slumps again in August

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German investor confidence had a bad case of the summertime blues this month and economic activity stagnated across the eurozone, with surveys released Tuesday now at multi-year lows owing to the debt crisis and poor growth prospects.

German investor confidence slumped for the sixth month running to a level last seen in December 2008, the height of the global financial crisis, the ZEW index showed, while a purchasing manager's index for the 17-nation eurozone compiled by London-based researchers Markit was stuck at a two-year low.

Private sector eurozone economic activity stagnated, with Markit's closely-watched survey showing only marginal growth overall and a switch into negative territory for manufacturing.

In Germany, the biggest eurozone economy, the ZEW economic expectations index fell a whopping 22.5 points to stand at minus 37.6 points, far below its historical average of 26.2 points.

The drop to a level last seen in 2008 was worse than expected, with economists polled by Dow Jones Newswires predicting on average a fall to minus 26 points.

"The fear of a recession in the United States together with the downgrade of the credit-rating of (the United States) has further increased macroeconomic uncertainty," a ZEW statement noted.

"Due to increased macroeconomic uncertainty, the critical development in the euro zone and the disappointing data on German GDP (gross domestic product) growth in the second quarter of 2011, financial market experts are far more sceptical now with respect to future economic growth," it added.

"This scepticism ... has increased dramatically" in recent months, the statement quoted ZEW president Wolfgang Franz as saying.

The survey's current conditions index plunged to 53.5 points from July's 90.6 points, "showing the strongest monthly fall ever since the start of the time series in December 1991," UniCredit economist Andreas Rees noted.

ZEW's indicators were based on surveys of 286 analysts and institutional investors, it said.

Its latest reading "adds to the evidence that the German economy has taken a turn for the worse," commented Jennifer McKeown, senior European economist at Capital Economics.

"Admittedly, the survey might have been unduly influenced by recent falls in equity prices, suggesting that it could rebound if market conditions improve," she said.

"But the decline probably also reflects investors concerns about the impact of bailing out indebted eurozone countries on the German economy and public finances."

Berenberg Bank senior economist Christian Schulz said the ZEW poll and PMI data taken together "support our view that the most likely scenario for the economic cycle going forward remains a growth pause until the end of the year."

But economists felt that the Ifo survey of German business sentiment to be released Wednesday would be "more informative of current developments at present," in the words of Ralph Solveen at Commerzbank.

Rees forecast "at least some negative spillover effects from financial markets into the real economy.

"Furthermore, a synchronous slowdown in the global economy is under way, thereby weighing on overall sentiment in the export dependent German industry in coming months," he said.

© 2011 AFP

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