* ZEW survey falls to 8.6 in Aug vs 27.1 in July
* Tension in Ukraine makes companies nervous
* Survey adds to concerns about German economy
(Adds economy ministry report, economist)
By Kirsti Knolle and Eva Taylor
MANNHEIM, Germany, Aug 12 German analyst and
investor morale plunged in August to its lowest level in more
than 1-1/2 years as the crisis in Ukraine took its toll, a
survey showed, suggesting that Europe's largest economy is
running out of steam.
Mannheim-based think tank ZEW's monthly survey of economic
sentiment, published on Tuesday, fell for an eighth consecutive
month to 8.6 in August, from 27.1 in July. That was its lowest
since December 2012, as tensions in Ukraine hit stock markets
and robbed firms of the confidence to invest at a time when
worries about German economic growth are gaining ground.
The reading, which was way off the consensus forecast in a
Reuters poll for a reading of 18.2, sent the euro to a session
low against the dollar and pushed Bund futures higher.
"German investor confidence plunged in August, as concerns
over growth and the escalation of tensions in eastern Ukraine
triggered a sharp correction in equity markets in the past two
weeks," said Christian Schulz, senior economist at Berenberg
"The drop in the ZEW index confirms the near-term downside
risk for the German and euro zone economies emanating from the
Ukraine crisis," he said.
ZEW said tensions abroad were probably behind the fall in
economic sentiment, adding that weak industrial output and
orders indicated German firms were investing significantly less
as they are unsure of their ability to sell in the current
German exports to Russia dropped by around 15 percent in the
first five months of the year and a growing number of the 6,200
German firms active in Russia are warning that the standoff
between Moscow and the West will hit their business.
On Tuesday German consumer goods group Henkel
forecast a tough six months ahead as political turmoil in
Russia, its fourth-largest market, is expected to hurt sales.
The ZEW survey also adds to signs of a slowdown in Europe's
economic powerhouse. It comes on the heels of data that showed a
drop in industrial orders and weaker business sentiment while
output and exports have risen only modestly.
Data due out on Thursday is expected to show the economy
stagnated in the second quarter, according to the consensus
forecast in a Reuters poll, but a growing number of economists
say it could even have contracted for the first time since late
Most economists have until now said they expect activity to
pick up again in the third quarter but Carsten Brzeski, senior
economist at ING, said the ZEW survey suggested economic
weakness in Germany could extend beyond the April-June period.
"Today's ZEW sends a worrying signal that the growth
performance in the second quarter could suddenly morph from a
one-off into an undesired trend," he said.
The economy grew at its fastest pace in three years at the
start of 2014 but that was mainly due to mild weather.
"Since the economy in the euro zone is not gaining momentum
either, the signs are that economic growth in Germany will be
weaker in 2014 than expected," ZEW said in a statement.
The government has predicted growth of 1.8 percent for this
year, driven by domestic demand as shipments abroad are forecast
to remain weak.
On Tuesday the German economy ministry said weaker momentum
in the euro zone, the conflict in Ukraine and uncertainty about
the situation in the Middle East weighed on the economy in the
second quarter, although positive growth trends remained intact.
"The overall economic performance in Germany probably
weakened in the second quarter," the ministry said in a
statement. The ministry would not clarify whether this meant
that the economy had contracted.
A gauge of current conditions in the ZEW survey tumbled to
44.3 from 61.8 in July, undershooting the consensus forecast for
a reading of 55.5.
The index was based on a survey of 222 analysts and
investors, and conducted between July 28 and Aug. 11, ZEW said.
(Additional reporting by Klaus Lauer in Berlin; Writing by
Michelle Martin in Berlin; Editing by Alexandra Hudson, Madeline
Chambers and Susan Fenton)