Huge uncertainty over eurozone growth: new ZEW chief

FRANKFURT Wed Feb 27, 2013 12:11pm EST

The illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) as a tram passes by in Frankfurt late evening, January 8, 2013. REUTERS/Kai Pfaffenbach

The illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) as a tram passes by in Frankfurt late evening, January 8, 2013.

Credit: Reuters/Kai Pfaffenbach

FRANKFURT (Reuters) - There is "huge uncertainty" surrounding the European Central Bank's expectation for a gradual euro zone recovery later in 2013 due to fiscal tightening in the bloc, the incoming chief of Germany's ZEW economic institute said.

Clemens Fuest also said he expected the German economy to recover only slowly in the first quarter despite some positive sentiment readings including from the Mannheim-based ZEW economic think tank, where he takes over as chief on Friday.

The ZEW's monthly survey on German analyst and investor morale showed sentiment soared in February to its highest level in nearly three years. Other forward-looking indicators from Germany have also been positive.

"There was a lot of optimism in financial markets but if you look at export markets, things are not going very well," Fuest said in a discussion at a Reuters summit on the future of the euro zone on Wednesday. "Germany has strong links to France, so exports to France will not be going very well.

"I do expect a recovery in Germany, I think there will be a recovery but not a very strong one in the first quarter. Over the entire year, I wouldn't expect a very strong recovery but a stabilisation certainly."

The German economy, Europe's largest, shrank by 0.6 percent in the final quarter of 2012, marking its worst performance since the global financial crisis was raging in 2009.

For the euro zone, the ECB expects a gradual recovery later this year. Fuest was skeptical about that outlook.

"I think that uncertainty with regard to that is huge," he said. "The forecast for fiscal policy is that it will be extremely contractionary in most countries. Is that compatible with recovery? I can't see it."

(Writing by Paul Carrel, editing by Mike Peacock)