German investor confidence fell to the lowest since August as political uncertainty in Ukraine threatens to weigh on a recovery in Europe’s largest economy that may be nearing its peak.
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 46.6 from 55.7 in February. That’s the third monthly decline. Economists forecast a decline to 52, according to the median of 41 estimates in a Bloomberg News survey. The gauge reached a seven-year high of 62 in December.
While German economic growth of 0.4 percent in the fourth quarter beat analysts’ estimates, increasing tensions with Russia over its seizure of Crimea, an economic slowdown in China and a muted revival in the rest of the single-currency region risk damping output. The euro area, Germany’s largest trading partner, is struggling with low inflation and near-record unemployment even as periphery countries are returning to growth.
“Sentiment was probably hit by worries about the Ukraine conflict, the strong euro, the lack of policy easing by the ECB earlier this month and doubts about the strength of the Chinese economy following a string of disappointing data from China,” said Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam. “Despite its decline, the ZEW indicator remains well above its long-term average value and at a level consistent with strong growth of the German economy.”
A gauge of the current situation rose to 51.3 in March from 50 the prior month. The survey of 241 analysts was carried out March 3-17, ZEW said. A measure of expectations for the euro area fell to 61.5 from 68.5.
German fourth-quarter growth was driven primarily by exports, which surged the most in three years, while private consumption declined.
In China, two manufacturing indexes fell last month, underscoring the challenges in the world’s second-largest economy as officials try to sustain expansion above Premier Li Keqiang’s 7.5 percent growth target.
Russia’s economy is showing signs of a crisis, the government in Moscow said yesterday as the U.S. and the European Union announced sanctions over the country’s support for the Crimea region breaking away from Ukraine.
Investor confidence “has been near record levels, and it could have reached a cyclical high,” said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “It would suggest that the German economy may find it difficult to re-accelerate from here, especially if foreign demand continues to slow down. Recent concerns about China and the Ukraine might have weighed on sentiment.”
Adidas AG forecasts 2014 profit as much as 17 percent below analysts’ estimates as the weakness of currencies such as the Russian ruble weighs on the world’s second-biggest sporting-goods maker. At the same time, Deutsche Lufthansa AG, Europe’s second-largest airline, reinstated dividend payments and maintained a target to triple operating profit within two years after European operations returned to profit.
The European Central Bank left its benchmark interest rate at a record-low 0.25 percent on March 6 and committed to keep borrowing costs accommodative until after the economy is showing signs of improvement. It predicts growth will accelerate to 1.8 percent in 2016 from 1.2 percent this year.