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German investor morale plunges to lowest since January 2013

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[May 13, 2014]  By Kirsti Knolle and Eva Taylor

MANNHEIM, Germany (Reuters) German analyst and investor sentiment declined for a fifth consecutive month in May to its lowest level in nearly 1-1/2 years as concerns intensified that economic growth in Europe's largest economy would slow in the second quarter.

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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