• ZEW expectations index drops to 1.0 in February from 10.2
  • ZEW's Steffen sees impact of `looming' world economic slowdown

German investor confidence fell to its lowest level since October 2014 as equities plummeted amid slowing Chinese growth and concern over the profitability of euro-area lenders.

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 1.0 in February from 10.2 in January. Economists predicted a decline to zero, according to a Bloomberg survey.

"The looming slowdown of the world economy and the uncertain consequences of the falling oil price put a strain on the ZEW Indicator of Economic Sentiment,” said Sascha Steffen, the head of International Finance and Financial Management research at ZEW. “In view of these developments, the concern over an increased credit default risk has already caused stock and bond prices for many banks in Europe, Japan and the US to slump."

Chinese growth is slowing as the nation rebalances its economy from traditional industries toward services, and the pullback is weighing down German exports, spooking global markets and shaking confidence. Bank-led equity sell-offs in the past week also threaten to choke off a fragile recovery in credit and stymie the euro area’s recovery.

Biggest Decline

“Everything that comes from abroad looks dangerous,” Jens Kramer, an economist at NordLB in Hanover, said before the report. “The crucial point is that consumers and investors in Germany will be a little bit anxious because of everything which is around us. Germany will not survive as an island in the storm.”

The DAX Index of German stocks has fallen 15 percent since the start of the year, even amid signs of strong domestic demand in the nation’s economy. Deutsche Bank AG, the country’s biggest lender, plunged almost 10 percent on Feb. 8.

The Bundesbank slashed its forecast for German inflation on Monday, citing renewed declines in the price of oil, in an unscheduled adjustment to its economic outlook.

Even so, the German central bank also said cheaper energy acts as a stimulant to the domestic economy and, along with a strong jobs market, may contribute to an acceleration in growth this quarter. German gross domestic product expanded 0.3 percent in the final three months of 2015.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE