Sluggish EU and Ukraine weigh on outlook for Germany

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Alessandro Speciale and Jeff Black Frankfurt

German investor confidence declined to the lowest level since 2012 this month as the crisis in Ukraine and a sluggish euro zone recovery damp the outlook for Europe’s largest economy.

The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 8.6 in August from 27.1 last month. Economists had forecast a fall to 17, according to the median of 31 estimates in a survey. The gauge has slipped every month since reaching a seven-year high in December last year.

German gross domestic product (GDP) probably fell last quarter for the first time since 2012, and escalating international sanctions against Russia over its support for rebels in Ukraine are undermining the outlook for coming months.

That threatens to weigh on the revival in the 18-nation euro zone, which has already seen Italy slip back into recession. GDP data are due out tomorrow for Germany and the euro zone.

“The German economy has been a little bit weaker than we thought in the second quarter,” said Anatoli Annenkov, a senior economist at Société Générale in London. “What is difficult is to determine how much of it is a Russia effect.”

A gauge of current conditions declined to 44.3 this month from 61.8 last month, the ZEW said. A measure of expectations for the euro zone slid to 23.7 from 48.1.

The ZEW said: “The decline in economic sentiment is likely connected to the ongoing geopolitical tensions that have affected the German economy. Since the economy in the euro zone is not gaining momentum either, the signs are that economic growth in Germany will be weaker in 2014 than expected.”

The DAX index of German stocks has dropped about 9 percent since closing at a record high on July 3. It was down 0.4 percent at 9 141 yesterday. – Bloomberg


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