German investor confidence drops in August

[August 17, 2010]  BERLIN (AP) -- German investor confidence has dropped for the fourth consecutive month on worries that slowing global growth may hurt the country's export-led recovery after a spectacular second quarter, a survey showed Tuesday.

The ZEW institute's confidence index, which measures professional investors' outlook for the next six months, was down to 14 points in August from 21.2 last month. That was below the historical average of 27.3, and worse than economists' expectation of a drop to 20.

Strong export growth fueled Germany's quarter-on-quarter growth of 2.2 percent in the April-June period. That powered the 16-nation eurozone to better-than-expected growth of 1 percent.

However, sentiment that the pace will be slower in the second half has been reinforced by recent signs of slowing growth in the United States and China.

Decreasing confidence looking forward "indicates that the enormous growth observed in the second quarter is unlikely to continue," ZEW said in a statement.

"Due to Germany's dependence on exports, major risks for economic growth arise from a weak development abroad," it added.

ZEW president Wolfgang Franz said that, given signs of less dynamic global growth, "the euphoria about the growth rates in some branches makes financial market experts feel uneasy."

While their six-month outlook darkened, investors' view of Germany's current situation was much brighter. A subindex measuring that aspect rose 29.7 points on the month in August to 44.3.

The German economy contracted by 4.7 percent last year, easily its worst performance since World War II.

The second-quarter economic figures already had prompted economists to up 2010 growth forecasts to as much as 3.5 percent. Economy Minister Rainer Bruederle has said growth of "well over 2 percent" is possible.

"A very strong rebound for this year as a whole is a done deal," said Alexander Koch, an economist at UniCredit.

"But although we cannot detect signs for an abrupt end to the recovery and we have no alarming indications for any kind of double dip, the momentum of the German economy is set to moderate substantially towards the end of the year and in 2011," he said.

Echoing that caution, the government is tamping down suggestions that it might revive plans for income tax cuts that were shelved earlier this year.

"Now is not the time for tax cuts, it is time for (budget) consolidation," Volker Kauder, the parliamentary leader of Chancellor Angela Merkel's conservatives, told ARD television.

"No one can say yet how things will develop," he added. "We depend strongly on exports."

The Center for European Economic Research, or ZEW, said 284 analysts participated in its July survey, which was conducted between July 26 and Aug. 16.

[Associated Press; By GEIR MOULSON]

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