German Investor Confidence Unexpectedly Drops Amid Risks

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German investor confidence unexpectedly fell, signaling concern that a global slowdown could weigh on Europe’s powerhouse economy.

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 25 in August from 29.7 in July. The reading is the lowest since November and compares with a median estimate of 31.9 in a Bloomberg survey of economists.

The International Monetary Fund last month cut its forecast for global growth, singling out financial-market turbulence in Greece and China. While Greece is now on the verge of a bailout deal, China devalued the yuan on Tuesday by the most in two decades, a move that rippled through international markets.

“On the one hand, the Greek issue is behind us, so that should kind of boost markets,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “On the other hand, in August we’ve had more focus on commodities and China, so it moved away from Europe, and some of those issues have been putting a little bit of new uncertainty into the market.”

Germany’s DAX Index of stocks briefly extended its decline after the report. It was down 1.2 percent at 11,460 at 11:13 a.m. Frankfurt time. The euro was little changed at $1.1026.

Fundamental Support

Still, the nation’s economy remains supported by record-low unemployment and interest rates that are driving consumer spending. ZEW’s measure of current conditions increased to 65.7 in August from 63.9 the previous month. A gauge of expectations for the euro area climbed to 47.6 from 42.7.

Growth in German gross domestic product accelerated to 0.5 percent in the second quarter, according to the median estimate in a Bloomberg survey of economists before the data are released on Friday. The rate of expansion will stay at 0.5 percent in each of the final two quarters of 2015, a separate survey shows.

“The German economic engine is still running smoothly,” ZEW President Clemens Fuest said in the report. “However, under the current geopolitical and global economic circumstances, a substantial improvement of the economic situation in Germany over the medium term is improbable. That is why economic sentiment has declined.”