German Confidence Falls More Than Forecast as Debt Crisis Threatens Growth

German investor confidence fell more than economists forecast to the lowest in more than 2 1/2 years in August on concern Europe’s debt crises will curb growth.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, plunged to minus 37.6 from minus 15.1 in July. That’s the lowest since December 2008 and the biggest drop since July 2006. Economists expected a decline to minus 26, according to the median of 36 estimates in a Bloomberg News survey.

A four-week rout in equities has wiped more than $8 trillion off global stock values, with Germany’s benchmark DAX index (DAX) plunging almost 25 percent, as investors fret that Europe won’t be able to contain the debt crisis and prevent it from infecting the banking sector. In addition, concerns about a renewed global slump have resurfaced as growth slows in Europe, the U.S. and Asia, damping export demand. Germany’s economy almost stalled in the second quarter, data showed last week.

“It’s been a bad month for the financial markets,” said Andreas Moeller, an economist at WGZ Bank in Dusseldorf. “The German economy may not fall off a cliff but it’s still very dependent on exports and with Europe tightening its belt and the global economy cooling, it’s hard to see where the growth is going to come from.”

Current Conditions

ZEW’s gauge of current conditions slumped to 53.5, the lowest in a year, from 90.6. The euro fell after the report before resuming its climb. It traded at $1.4491 at 11:55 a.m. in Frankfurt.

“Let’s not forget that it’s financial analysts who take part in ZEW, not German executives, so it doesn’t accurately reflect the real economy,” said Jens Kramer, an economist at NordLB in Hanover. “Yes, Germany’s economy is slowing down, but we’re certainly not heading for a recession. The ZEW says more about the fragility of financial markets than the fragility of the German economy.”

German gross domestic product rose just 0.1 percent in the second quarter after jumping 1.3 percent in the first three months of the year. Growth in the 17-member euro area, Germany’s main export market, slowed to 0.2 percent from 0.8 percent as governments from Greece to Spain cut spending to rein in budget deficits.

Celesio AG (CLS1), Europe’s biggest drug wholesaler, on Aug. 11 reported a second-quarter loss of 86.9 million euros ($126 million) partly due to government price cuts.

European service and manufacturing industries grew at the slowest pace in two years in August, a report showed today.

Global Economy

Europe’s malaise is further confirmation of a cooling global economy. Japan has cut its annual growth forecast due to weaker export prospects, Hong Kong’s economy unexpectedly shrank in the second quarter and China’s expansion slowed. In the U.S., Federal Reserve Chairman Ben S. Bernanke has signaled he may expand record monetary stimulus to revive a faltering recovery and reduce unemployment stuck around 9 percent.

In Germany, unemployment at a two-decade low of 7 percent may boost household spending and help to offset slowing exports, said Aline Schuiling, a senior economist at ABN Amro in Amsterdam.

“Germany’s domestic economy is still stronger than the euro-area average so that should shield it somewhat from the global rout,” she said. “However, the question is how long that buffer is going to last.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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