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German investor morale slips as euro crisis takes toll

Source: Thomson Reuters Foundation - Tue, 13 Nov 2012 10:47 GMT
Author: Reuters
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By Victoria Bryan and Sakari Suoninen

MANNHEIM, Germany, Nov 13 (Reuters) - German analyst and investor sentiment unexpectedly fell in November as the euro zone crisis pounds Europe's largest economy and optimism spurred by the European Central Bank's announcement of an unlimited bond-buying programme wanes.

The main reading from the ZEW think tank's monthly poll showed economic sentiment fell to -15.7 from -11.5 in October, coming in well below the consensus forecast in a Reuters poll of 38 analysts for a reading of -9.8.

The worse-than-expected reading sent the euro to a fresh two-month low against the dollar while European stocks extended losses.

"With the (European Central) Bank yet to purchase any bonds and worries about Greece escalating again, investors seem to be losing what little faith they had regained," said Jennifer McKeown, senior European economist at Capital Economics.

"For now, the ZEW looks broadly consistent with economic stagnation in Germany. But we think that the economy will slide back into recession next year as the peripheral debt crisis intensifies and business and consumer confidence weaken further."

Germany for a long time seemed impervious to the region's troubles as private consumption remained robust and healthy demand beyond the euro zone negated the effects of weaker European appetite.

But recent data from Europe's economic powerhouse and paymaster has been largely disappointing, with the private sector contracting, business sentiment plummeting and exports sliding at their fastest pace since late last year.

DISAPPOINTING READING

ZEW suggested worsening economic sentiment could be due to disappointing leading indicators such as industrial orders, which dropped by 3.3 percent on the month in September - a worrying sign given that manufacturing accounts for a third of German gross domestic product (GDP).

"Prevailing recessionary developments in the euro zone impact the German economy via foreign trade and a lack of confidence. This is likely to be a burden for economic growth in Germany during the next six months," ZEW President Wolfgang Franz said.

A separate gauge of current conditions slipped to 5.4 from 10.0 in October. A reading of 8.0 had been forecast in a Reuters poll of 23 economists.

German companies are feeling the pinch, with Commerzbank missing third-quarter profit forecasts and media conglomerate Bertelsmann and its RTL Group warning the crisis in Europe would weigh on earnings this year as companies spend less on advertising.

Data due out on Thursday is expected to show Germany's gross domestic product (GDP) expanded by a mere 0.2 percent in the July-September period after growing by 0.5 percent in the first quarter and 0.3 percent in the second.

Many economists expect German GDP to contract in the fourth quarter for the first time since the end of 2011, though healthy consumer appetite and a robust jobs market should help Germany to avoid a recession, defined as two quarters of contraction.

ZEW economist Christian Dick said the drop in economic sentiment was not an indication of a recession: "It's more or less a sign that the German economy is continuing to weaken over the next six months but not in the sense of a sharp recession as we see in the other European countries."

That tallies with the Economy Ministry's view that growth will probably slow in the fourth quarter of this year and the first of 2013.

The ZEW index was based on a survey of 263 analysts and investors conducted between Oct 29 and Nov 12, ZEW said.

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