September 17, 2019 / 9:23 AM / a month ago

German economic outlook remains negative despite improved investor morale: ZEW

BERLIN (Reuters) - The mood among German investors improved more than expected in September, a survey showed on Tuesday, but the ZEW institute warned that the outlook for Europe’s largest economy remained negative due to trade disputes and Brexit uncertainty.

ZEW said its monthly survey showed economic sentiment among investors rose to -22.5 from -44.1 in August. Economists polled by Reuters had expected a slight improvement to -37.0.

A separate gauge measuring investors’ assessment of the economy’s current conditions fell to -19.9 from -13.5 in the previous month. ZEW said that was the lowest reading since May 2010. Analysts had predicted a reading of -15.0.

“The rise of the ZEW Indicator of Economic Sentiment is by no means an all-clear concerning the development of the German economy in the next six months,” ZEW President Achim Wambach said, adding: “The outlook remains negative.”

Wambach put the improved investor morale down to the fact that many investors had expected a sharp escalation of the trade dispute between China and the United States, adding that those strong fears did not materialize.

Washington and Beijing agreed in early September to resume high-level trade talks in October.

“And there is still hope that a no deal Brexit can be avoided,” Wambach said, adding that investors also welcomed the European Central Bank’s attempts to reduce economic risks in the euro zone by further easing its monetary policy.

The German economy is on the brink of recession after gross domestic product shrank by 0.1% in the second quarter and recent data pointed to continued weakness in manufacturing in the current quarter.

Most economists define a period of at least two consecutive quarters of contraction as a technical recession, though that does not necessarily mean that annual growth rates will turn negative.

The German government expects economic growth to slow to 0.5% this year after 1.5% in 2018. For 2020, it predicts a consumption-driven rebound to 1.5%.

The Economy Ministry said on Friday the economy was not facing a bigger downturn or a pronounced recession after contracting slightly in the second quarter, but it also warned there were no signs of a turnaround either.

Reporting by Michael Nienaber; Editing by Michelle Martin & Kim Coghill

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