German investor confidence fell from a two-year high in May as Europe’s debt crisis clouded the economic outlook.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to 10.8 from 23.4 in April. That’s the first decline since November and the biggest since August. Economists forecast a drop to 19, according to the median of 34 estimates in a Bloomberg News survey.
Germany’s benchmark DAX index fell 10 percent in the last two months, paring its 2012 gain to 9 percent, as concerns about Spain’s creditworthiness mounted and an inconclusive election in Greece raised the possibility of its exit from Europe’s monetary union. Still, Germany averted a recession in the first quarter with growth of 0.5 percent, the country’s statistics office said today, beating economists’ forecasts.
“Financial markets have been spooked again by the re-intensification of the euro debt crisis,” said Jens Sondergaard, an economist at Nomura International Plc in London. “It is possible that the ZEW more reflects the deterioration in financial-market sentiment rather than a fundamental reassessment of where the German economy is heading.”
ZEW said its gauge of the current situation rose to 44.1 from 40.7. The euro was little changed after the report at $1.2846.
Europe Avoids Recession
German business confidence unexpectedly increased to a nine-month high in April, factory orders and industrial production rose more than forecast in March and exports climbed as companies tapped demand in emerging markets.
First-quarter growth, which beat economists’ 0.1 percent median estimate, was mainly driven by net trade, the statistics office said today. Domestic consumption increased while investment declined.
Germany’s resilience helped the euro area avoid recession. After shrinking 0.3 percent in the final quarter of 2011, the 17-nation economy stagnated in the first three months of this year, confounding economists’ median forecast for a 0.2 percent contraction.
Growth in Europe’s largest economy may be damped by austerity measures across the region, which are curbing demand in Germany’s largest export market. The European Commission last week forecast gross domestic product will drop 0.3 percent in the euro area as a whole this year. While Germany will post 0.7 percent growth, GDP is predicted to shrink 4.7 percent in Greece, 1.8 percent in Spain, 1.4 percent in Italy and 0.9 percent in the Netherlands, it said.
Concerns about Spain’s banking sector and the failure of May 6 elections to produce a stable Greek government that embraces reform have brought the sovereign-debt crisis to the forefront again.
In France, Francois Hollande won the presidential election after campaigning against German Chancellor Angela Merkel’s austerity drive in favor of more focus on growth.
The drop in the ZEW index “is particularly due to the elections in France and Greece,” said Michael Schroeder, head of ZEW’s financial markets department. “You don’t know whether Greece will stay within the euro zone or not, what will happen to fiscal consolidation. It doesn’t mean everything is negative, it means there is high amount of uncertainty.”
Spanish 10-year bond yields rose above 6.2 percent yesterday for the first time in more than five months. At the same time, German, Finnish and Dutch yields reached record lows.
“Increased tensions in the euro sovereign debt markets explain why investors are somewhat less optimistic,” said Klaus Baader, senior economist at Societe Generale SA in Hong Kong. “Germany’s current situation is stable.”
German unemployment at a two-decade low and rising wages are helping the country to weather the region’s turmoil.
Public sector employees won an agreement in late March for as much as 6.3 percent more pay by the end of 2013. IG Metall, Europe’s biggest manufacturing union, is demanding a 6.5 percent wage increase for its 3.6 million members.
“The debt crisis will continue to weigh on the economy,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “Germany won’t record its strongest growth ever, but it will continue to outperform its euro-region peers.”
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