German investor confidence slips

[July 14, 2009]  BERLIN (AP) -- Investor confidence in Germany, Europe's biggest economy, slipped in July after an eight-month rise as worries over bank lending clouded optimism over improving industrial data, a closely watched survey showed Tuesday.

The ZEW institute said its monthly index, which measures investors' outlook for the next six months, slipped to 39.5 points this month from 44.8 in June.

Germany's export-dependent economy sank into recession last year as the global downturn dried up demand for its manufactured goods.

However, recent data have shown industrial orders and production beginning to recover -- even as worries persist over banks' reluctance to lend.

"A considerable risk for the future development of the German economy is whether lending to firms and households works out," ZEW said in a statement.

Investors' view of Germany's current situation was barely changed this month, the institute said. A subindex measuring that assessment increased by just 0.4 points to minus 89.3 in July.

Economists had expected a slight increase, or at worst a smaller dip, in the overall index.

Still, "it is unlikely in our view that this setback signals a trend reversal downwards," economists at Commerzbank AG in Frankfurt wrote in a research note.

"Firstly, the movement can hardly be described as significant given the high volatility of the index," they added. "Secondly, the 'hard' economic data should increasingly turn upwards in the coming months, so the current doubts on the sustainability of the emerging turnaround should abate."

ZEW described the decline as only a "slight correction of economic expectations," but said the latest reading confirmed forecasts by the government and others that gross domestic product will shrink by about 6 percent this year -- by far the worst performance since World War II.

"Growth rates are likely to move around zero percent until the first months of 2010," ZEW president Wolfgang Franz said. Official second-quarter growth figures are due on Aug. 13.

The index is based on a monthly survey of up to 350 financial experts by the Mannheim-based ZEW, or Center for European Economic Research.

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[Associated Press; By GEIR MOULSON]

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