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 Mannheim-based think tank ZEW's monthly survey of economic
sentiment, released on Tuesday, dropped to 33.1 from 43.2 in April,
missing the Reuters consensus forecast for a reading of 41.0 and
undershooting even the lowest estimate for 37.1.
That sent the euro down to a one-month low against the dollar.
"The fifth consecutive decline in ZEW investor sentiment in May
suggests that the German recovery might not gain much pace from
here," said Jessica Hinds, economist at Capital Economics.
"Data later this week are likely to reveal that the German economy
made a strong start to the year, perhaps expanding by a quarterly
0.7 percent or so. But today's survey broadly supports our view that
this pace of growth is unlikely to be sustained."
Recent hard data has shown German exports posting their biggest fall
in nearly a year, while industry output, orders and retail sales
have all fallen.
But Germany's closely-watched Ifo survey of business sentiment
improved, according to its latest reading, as firms shrugged off
tensions over Ukraine. And current conditions were a bright spot in
the ZEW survey, climbing to their highest level since July 2011.
After growth of just 0.4 percent last year, the government has
predicted expansion of 1.8 percent this year, driven by domestic
demand.
"The decline of the experts' economic expectations for Germany
should be seen against the backdrop of a strong economic development
in the first quarter of 2014," said ZEW President Clemens Fuest.
"Already, there are indications that Germany will not be able to
maintain this fast pace of growth."
The economy ministry's monthly report on Tuesday said that after a
robust performance between January and March due to a milder winter,
the spring revival might be weaker than usual.
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With Russian President Vladimir Putin having overturned years of
post-Cold War diplomacy by seizing Crimea from Ukraine and a
pro-Moscow uprising in the east of the country raising the prospect
of civil war, there are other risks too.
A ZEW economist said it was unclear how far geopolitical risks had
contributed to the headline indicator's decline but some economists
suggested it played a role.
"The geopolitical conflict close to Germany's backyard, concerns
about the Chinese economy and the recent equity market correction
have clearly dented investors' optimism," said Carsten Brzeski,
economist at ING.
"After the excellent start to the year, the German economy is now
starting to feel some headwinds," he added.
The index was based on a survey of 248 analysts and investors
conducted between April 28 and May 12, ZEW said.
(Reporting by Kirsti Knolle and Eva Taylor; Writing by Michelle
Martin in Berlin; Editing Stephen Brown)
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