German investor confidence unexpectedly fell for a sixth month in June even after the European Central Bank announced a new round of stimulus aimed at preventing deflation and rekindling growth in the euro area.
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 29.8 from 33.1 in May. Economists forecast an increase to 35, according to the median of 35 estimates in a Bloomberg News survey. The gauge has dropped every month since reaching a seven-year high in December and is now at the weakest since December 2012.
German economic growth has slowed this quarter after output was buoyed at the start of the year by a mild winter, according to the Bundesbank. While the prospects for Europe’s largest economy remain sound, the 18-nation euro area is struggling with subdued growth and low inflation, prompting the ECB to unveil a package of measures including a negative deposit rate and targeted long-term loans to banks.
“The German economy is currently in a very good shape but further increases are becoming more difficult,” said ZEW President Clemens Fuest. “We had a strong first quarter in 2014 due to favorable weather conditions but signs are that the second quarter will be weaker.”
Expectations among respondents became “slightly more optimistic” after the ECB announced its measures on June 5, signaling that that the stimulus plans had a positive effect, ZEW said. The survey was carried out from June 2 to June 16.
German unemployment unexpectedly increased in May for the first time in six months and business confidence as measured by the Ifo institute declined. Deutsche Lufthansa AG, Europe’s second largest airline, cut earnings forecasts as a capacity splurge at Gulf competitors hurts prices and its own pilots protest against cost cuts.
The Bundesbank predicts the economy will grow “slightly” in the second quarter after it expanded 0.8 percent in the first three months of the year. The Frankfurt-based central bank forecasts growth of 1.9 percent in 2014, 2 percent in 2015 and 1.8 percent in 2016.
“Germany is basically doing alright,” said David Milleker, chief economist at Union Investment GmbH in Frankfurt. “Perhaps, after a spectacular first quarter, it is now in a cool-down period.”
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