German ZEW Investor Sentiment Deteriorates in Brexit Aftermath

  • Gauge for expectations falls to minus 6.8 in July from 19.2
  • ZEW says Brexit mainly responsible for decline in confidence

German investor confidence deteriorated in July on concern that Britain’s decision to leave the European Union could weaken the region’s fragile economic recovery.

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 minus 6.8 from 19.2 in June. That’s the lowest level since November 2012. Economists in a Bloomberg survey predicted a drop to 9.

While the unexpected outcome of the U.K.’s referendum on June 23 sent shockwaves through financial markets, pledges from Europe’s central banks to provide liquidity if needed have since restored some calm. Still, European Central Bank President Mario Draghi has predicted Brexit could weaken euro-area growth by as much as 0.5 percentage point over the next three years, fueling speculation additional stimulus may be needed before the end of the year.

“The Brexit vote has surprised the majority of financial-market experts,” ZEW President Achim Wambach said in a statement. “Uncertainty about the vote’s consequences for the German economy is largely responsible for the substantial decline in economic sentiment.”

The survey was conducted among 220 analysts from July 4-18. A gauge for current conditions fell to 49.8 in July from 54.5. A measure for expectations in the euro area fell to minus 14.7 from 20.2.

The Bundesbank said in its monthly report on Monday that the economic impact of Britain’s vote to leave may be limited in the short term, even as the entire fallout is currently difficult to estimate. The U.K. is the third-largest destination for German exports.

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