German investor confidence posts sharp drop for fourth month in row
Published 18/08/2010 | 05:00
GERMAN investor confidence has fallen sharply this month, for the fourth month in a row, on fears that the strong economic growth recorded in the second quarter will not last.
The ZEW Indicator of Economic Sentiment fell from 21.2 in July to 14 in August -- its lowest level since April 2009.
The German economy grew by 2.2pc in the three months to June, its fastest quarterly growth in more than 20 years.
But ZEW said Germany's dependence on exports meant any slowdown abroad posed "major risks" to growth. Analysts had expected a much smaller drop in the index to about 20 or 21. The index was based on a survey of 284 analysts and investors and conducted between July 26 and August 16.
Peter Meister from BHF Bank said the decline in expectations needed to be seen in the context of the strong second quarter.
"The spring was exceptional," he said. "It's only natural that the economy can't continue like this -- and that's what ZEW is saying too. The recovery won't continue at this pace. It will become more leisurely.
"However, we're not pessimistic about the German outlook. We expect growth of more than 3pc this year and decent growth next year too."
While Germany's economy grew at the fastest pace in two decades in the three months through June, the recovery is being driven by exports and there are signs that demand will wane.
Factory orders in the US fell more than economists forecast in June, while China's manufacturing grew at the slowest pace in 17 months in July. European governments are also cutting spending to rein in ballooning budget deficits, threatening to slow growth across the 16-nation euro region, Germany's biggest export market.
ZEW's report is "by no means as bad as it seems", said Ken Wattret, chief euro-area economist at BNP Paribas SA in London. "The current assessment rocketed up, meaning the economy is doing really well and everyone expects that it's going to be cooling toward the end of the year."
ZEW's gauge of current conditions jumped to 44.3, the highest since January 2008, from 14.6 in July. The euro initially fell a quarter of a cent before rebounding to $1.2902 in Frankfurt. The data suggests the economy, which contracted 4.7pc last year, will grow "far more than 2pc in 2010", Economy Minister Rainer Bruederle said after the report.
UniCredit raised its 2010 growth forecast to 3.5pc from 2pc. "German GDP should post a very healthy expansion of at least 3pc this year thanks to a surge in exports," said Jennifer McKeown, an economist at Capital Economics in London. "But as global demand growth slows further and consumers remain reluctant to spend, the recovery is likely to be fairly short-lived."
The benchmark DAX share index has dropped 3pc in the last week, paring its gain for the year to 3pc.