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 Mannheim-based think tank ZEW's monthly survey of economic
sentiment, published on Tuesday, fell for an eighth consecutive
month to 8.6 in August, from 27.1 in July. That was its lowest since
December 2012, as tensions in Ukraine hit stock markets and robbed
firms of the confidence to invest at a time when worries about
German economic growth are gaining ground.
The reading, which was way off the consensus forecast in a Reuters
poll for a reading of 18.2, sent the euro to a session low against
the dollar and pushed Bund futures higher.
"German investor confidence plunged in August, as concerns over
growth and the escalation of tensions in eastern Ukraine triggered a
sharp correction in equity markets in the past two weeks," said
Christian Schulz, senior economist at Berenberg Bank.
"The drop in the ZEW index confirms the near-term downside risk for
the German and euro zone economies emanating from the Ukraine
crisis," he said.
ZEW said tensions abroad were probably behind the fall in economic
sentiment, adding that weak industrial output and orders indicated
German firms were investing significantly less as they are unsure of
their ability to sell in the current climate.
German exports to Russia dropped by around 15 percent in the first
five months of the year and a growing number of the 6,200 German
firms active in Russia are warning that the standoff between Moscow
and the West will hit their business.
On Tuesday German consumer goods group Henkel forecast a tough six
months ahead as political turmoil in Russia, its fourth-largest
market, is expected to hurt sales.
SLOWING ECONOMY
The ZEW survey also adds to signs of a slowdown in Europe's economic
powerhouse. It comes on the heels of data that showed a drop in
industrial orders and weaker business sentiment while output and
exports have risen only modestly.
Data due out on Thursday is expected to show the economy stagnated
in the second quarter, according to the consensus forecast in a
Reuters poll, but a growing number of economists say it could even
have contracted for the first time since late 2012.
Most economists have until now said they expect activity to pick up
again in the third quarter but Carsten Brzeski, senior economist at
ING, said the ZEW survey suggested economic weakness in Germany
could extend beyond the April-June period.
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"Today's ZEW sends a worrying signal that the growth performance in
the second quarter could suddenly morph from a one-off into an
undesired trend," he said.
The economy grew at its fastest pace in three years at the start of
2014 but that was mainly due to mild weather.
"Since the economy in the euro zone is not gaining momentum either,
the signs are that economic growth in Germany will be weaker in 2014
than expected," ZEW said in a statement.
The government has predicted growth of 1.8 percent for this year,
driven by domestic demand as shipments abroad are forecast to remain
weak.
On Tuesday the German economy ministry said weaker momentum in the
euro zone, the conflict in Ukraine and uncertainty about the
situation in the Middle East weighed on the economy in the second
quarter, although positive growth trends remained intact.
"The overall economic performance in Germany probably weakened in
the second quarter," the ministry said in a statement. The ministry
would not clarify whether this meant that the economy had
contracted.
A gauge of current conditions in the ZEW survey tumbled to 44.3 from
61.8 in July, undershooting the consensus forecast for a reading of
55.5.
The index was based on a survey of 222 analysts and investors, and
conducted between July 28 and Aug. 11, ZEW said.
(Additional reporting by Klaus Lauer in Berlin; Writing by Michelle
Martin in Berlin; Editing by Alexandra Hudson, Madeline Chambers and
Susan Fenton)
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