UPDATE 1-German economic morale dive is sharpest since 1998

Tue Jun 19, 2012 7:12am EDT

Related Topics

MANNHEIM, Germany, June 19 (Reuters) - German analyst and
investor morale sank in June at its fastest rate since October
1998 on worries about the health of the Spanish banking sector
and uncertainty over the Greek election outcome, a survey showed
on Tuesday.
    The Mannheim-based ZEW economic think tank's monthly poll of
economic sentiment fell to -16.9, weaker than any of the 42
forecasts in a Reuters poll and adding to signs that Germany,
whose wealth is central to generating growth and financing
bailouts in the euro zone, is beginning to feel the bloc's pain.
    The figure plunged from 10.8 in May and came in way below
the central forecast of a drop to 4.0.
    "It has really come as a surprise to me that it is such a
huge decline," ZEW economist Michael Schroeder said.  "This is
not just monthly fluctuation, this is really too big a change to
be interpreted as that."  
    Schroeder added that falling exports and slowing growth in
Europe and Asia had contributed to the decline.
    The euro slid against the dollar and European stocks
also dropped after the much weaker-than-expected survey.
    "The financial market experts' expectations are a strong
warning against a too-optimistic assessment of Germany's
economic perspectives in the remainder of this year," said ZEW
President Wolfgang Franz.
    "The risks of a pronounced decline in economic activity in
countries with close trade ties to Germany are very clear," 
Franz added, describing the situation in the euro zone as
"precarious."
    But ZEW's Schroeder said he did not expect Germany to fall
into recession, although he said the country would experience
slow growth and pointed to the negative outlook for the next
half year, especially in the banking and insurance sectors.
    "You can't exactly translate a negative figure in
expectations into negative growth," he said.
    The German economy grew a more-than-expected 0.5 percent in
the first quarter but recent data from Germany has been
disappointing, with data earlier this month showing that German
imports tumbled at their fastest rate in two years in April and
exports fell more than expected.
    But some economists said there was still hope on the
horizon.
    "Towards the end of the year, we expect Germany's economy to
grow again and help drag the rest of the euro zone out of
recession," said Christian Schulz of Berenberg Bank.
    The ZEW index was based on a survey of 274 analysts and
investors conducted between May 29 and June 18. Around 30 of the
results were collected after Greeks gave pro-bailout parties a
narrow majority in Sunday's election but these were only
slightly better than responses collected before Greece went to
the polls, Schroeder said.
    He added that the number of survey participants who expect
the ECB to slash interest rates in the next half year had risen
but they were still in the minority.
FILED UNDER: