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, dropped to 27.1 from 29.8 in June. Economists forecast a decrease to 28.2, according to the median of 36 estimates in a Bloomberg News survey. The gauge has dropped every month since reaching a seven-year high in December.
Industrial production fell for a third month in May and factory orders slid more than economists expected, in a sign that growth slowed in the three months through June. While the Bundesbank predicts a stronger expansion in the current quarter, political tensions in the Middle East and Ukraine pose downside risks to the global economy Germany relies on as an export nation.
“There’s even a chance that the economy stagnated in the second quarter, and an escalation in the Middle East would of course affect Germany,” said Stefan Schneider, chief German economist at Deutsche Bank AG in Frankfurt. “But such an escalation is an unlikely scenario and generally speaking, the German economy is still solid.”
ZEW’s measure for current conditions fell to 61.8 in July from 67.7. The survey was conducted between June 30 and July 14 among 238 analysts and institutional investors, the institute said.
The euro dropped after the report and traded at $1.3599 at 11:02 a.m. Frankfurt time.
“Germany has experienced a slight dent in economic activity recently,” said ZEW President Clemens Fuest. “The current decrease of the ZEW indicator of economic sentiment reflects this sobering development. On a general note, however, the medium-term economic outlook remains favorable.”
At 0.8 percent, growth in the first quarter was the strongest in three years, and Market Economics has said that its gauges of manufacturing and services activity point to an economic expansion of as much as 0.7 percent in the previous period.
Companies’ assessment of their business outlook diverges. While Porsche, the unit of Volkswagen AG making the 911 sports car, plans to increase headcount by 1,000 employees annually over the next five years, Bilfinger SE said on July 1 that full-year profit will decline as European investment in the oil and gas sector slows.
The Bundesbank predicts the German economy will grow 1.9 percent this year, 2 percent in 2015 and 1.8 percent in 2016.
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