German Investor Sentiment Falls as China Roils Asset Markets

  • ZEW expectations index drops to 10.2 in January from 16.1
  • ZEW's Steffen sees China slowdown damping German growth

German investor confidence fell for the first time in three months after a global equity selloff and slumping oil prices prompted concern that a Chinese economic slowdown is dragging on the rest of the world.

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, fell to 10.2 in January from 16.1 in December. Economists predicted a decline to 8, according to a Bloomberg survey.

China recorded its slowest economic expansion in more than two decades in 2015 amid a rebalancing from traditional industries toward services, and Germany’s BGA trade group has warned that a ‘hard landing’ in the Asian nation will push Europe’s largest economy into a recession. The Bundesbank, which predicts domestic demand will continue to support the recovery, isn’t yet concerned -- it sees German exports rising sharply in the next two years.

"The beginning of the new year is characterized by capital-market turmoil in China, which has also led to significant share price declines in Germany,” said Sascha Steffen, head of ZEW’s international finance and financial management research department. “Weak economic growth in China and other important emerging markets puts a strain on Germany’s economic outlook.”

Climate of Uncertainty

Still, ZEW’s gauge for current conditions in Germany rose 59.7 from 55 in December. A measure for business expectations in the 19-nation euro area declined to 22.7 from 33.9.

The euro was little changed after the report and traded at $1.0872 at 11:09 a.m. Frankfurt time. The benchmark DAX Index, which has declined almost 15 percent since the beginning of December, was up 2 percent.

German gross domestic product rose 1.7 percent in 2015, the Federal Statistics Office said at a press conference on Thursday. The Bundesbank forecasts the economy will expand 1.8 percent this year and 1.7 percent in 2017.

“The key question is how resilient can domestic demand be if a slowdown in international trade were to materialize,” said Anna Maria Grimaldi, an economist at Intesa San Paolo SpA in Milan. “The climate of uncertainty may affect consumer spending but German fundamentals remain strong.”

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