German Investor Confidence Drops as Volkswagen Woes Damp Outlook

AG Dealerships As Company Pledges To Finish Diesel Recalls By End Of 2016
Photographer: Akos Stiller/Bloomberg
  • ZEW index declines to one-year low of 1.9 in October
  • China slowdown and Volkswagen scandal weigh on sentiment

German investor confidence fell to the lowest level in a year as Europe’s largest economy faces the fallout of Volkswagen AG’s emissions scandal and weaker growth in emerging markets.

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 ahead, slid to 1.9 in October from 12.1 in September. That’s the seventh consecutive decline and compares with an estimated drop to 6.5 in a Bloomberg survey of economists.

Volkswagen’s admission on Sept. 18 that it fixed emissions tests in 11 million of its diesel-engine cars cost the company as much as $33 billion in market value and sent Germany’s benchmark DAX Index down 3.5 percent in the two trading days that followed. The news broke as Germany’s trade-focused economy struggled to adapt to receding demand in emerging markets.

Exports fell 5.2 percent in August, the most since the height of the 2009 recession. Factory orders and industrial output unexpectedly declined, and the country’s leading economic research institutes lowered their 2015 growth forecast. At the same time, domestic consumption, investment and a recovery in the neighboring euro region are still lending support to the German economy. Business confidence as measured by the Ifo research institute unexpectedly improved in September.

“The exhaust-gas scandal of Volkswagen and the weak growth of emerging markets has dampened economic outlook for Germany,” ZEW President Clemens Fuest said in a statement on the institute’s website. “However, the performance of the domestic economy is still good and the euro-area economy continues to recover.”

ZEW’s gauge for current conditions in Germany fell to 55.2 in October from 67.5. A measure for business expectations in the 19-nation euro region fell to 30.1 from 33.3.

The euro dropped after the report and traded at $1.1377 at 11:27 a.m. Frankfurt time.

European Central Bank President Mario Draghi has warned that an emerging-market slowdown and falling commodity prices pose risks, and said repeatedly that policy makers stand ready to add stimulus if needed. Executive Board member Sabine Lautenschlaeger said in an interview last week that discussing concrete measures would be “really premature” amid a lack of information about the underlying strength of the euro-area economy.

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