Ukraine, Scotland push German investor morale lower

[September 16, 2014]  By Kirsti Knolle and Eva Taylor

MANNHEIM Germany (Reuters) - German analyst and investor morale fell in September to its lowest level since December 2012 in a sign that the Ukraine crisis is taking its toll on Europe's largest economy while uncertainty about the Scottish referendum is also weighing.

Mannheim-based think tank ZEW's monthly survey of economic sentiment, published on Tuesday, dropped for a ninth straight month to 6.9 from 8.6 in August. That was, however, better than the consensus forecast in a Reuters poll for a reading of 4.8.

ZEW economist Frieder Mokinski said there was much concern about the consequences of the Scottish referendum to be held this week. The United Kingdom is Germany's third biggest export market.

"The German ZEW just sent more signs of caution, showing that at least financial market participants are quickly losing confidence in the German growth story," said Carsten Brzeski, senior economist at ING.

"Increased uncertainty (is) stemming from geopolitical tensions, the Ukraine crisis, the economic impact from sanctions and possible trade retaliation and the general slowing down of emerging market economies."
 

The German economy, which had powered ahead early this year thanks to an unusually mild winter boosting construction, suffered a surprise 0.2 percent contraction in the second quarter, leading some economists to warn of a risk of recession.

Recent surveys have shown business morale weakening and private sector growth slowing but the latest hard data has been upbeat - industrial orders, output and the trade surplus all surged in July.

The OECD on Monday slashed its growth forecast for 2014 growth in Germany to 1.5 percent from its May estimate of 1.9 percent. While the government predicts the economy will expand by 1.8 percent, Finance Minister Wolfgang Schaeuble has said it may just miss that forecast, according to sources.

ZEW chief economist Clemens Fuest said the indicator's downward trend had slowed significantly but added that the economic environment remained uncertain as the threat of a spiral of sanctions between Russia and the West still loomed and economic activity in the euro zone remained weak.

Economist Mokinski said there was uncertainty about what currency Scotland would use if it broke away and the vote's repercussions for other regions in the European Union.

"Will they make a new try to join the European Union, what will that mean for other small areas which think about secession like Catalonia or others? Basically there's plenty of uncertainty around," he said.

But Mokinski said there was a noticeable improvement in sentiment after the ECB cut the cost of borrowing to near zero and also pledged to buy repackaged debt in an effort to encourage lending to credit-starved companies.

A gauge of current conditions plunged to 25.4 in September - its weakest level since August 2013 - from 44.3 the previous month. It undershot by far the consensus forecast for a reading of 40.0 and missing even the lowest estimate for 30.0.

The index was based on a survey of 234 analysts and investors conducted between Sept 1 and 15, ZEW said.

(Reporting by Kirsti Knolle and Eva Taylor in Mannheim; Writing by Michelle Martin in Berlin; Editing by Madeline Chambers)

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