BERLIN, Aug 20 (AFP): German investors do not expect a recession in Europe's biggest economy, a key indicator suggested yesterday, as cheaper oil and a weakening euro ease some of the pressure on firms and consumers.
The ZEW research institute said its index of economic sentiment stood at minus 55.5 points, up 8.4 points from July when the survey hit its lowest level since its creation in December 1991.
"The improvement ... signals that fear about an economic downturn among financial market experts is contained. The recent fall in the price of oil and the weakening of the euro against the dollar must have dampened concerns about the economy," the ZEW said.
"Market experts have not been particularly taken aback by the negative growth rate of the second quarter. They expect weaker but all in all, solid economic conditions and do not fear a recession."
The ZEW forecast, based on a survey of 300 analysts and institutional investors, was better than expected, with economists polled by Dow Jones Newswires looking for a reading of minus 62 points.
Economists however remained cautious.
"(The) rise did not offset last month's fall and the still deeply negative level means that many more investors expect the economy to deteriorate in the next six months than think that it will improve," Jennifer McKeown at Capital Economics said.
Data last week showed that the German economy, which accounts for a third of total Eurozone output, went into reverse in the second quarter for the first time in nearly four years, contracting by 0.5 per cent.
The figures sent jitters through the markets on fears that Europe's powerhouse was headed for recession a year after the US subprime home loan crisis began, dragging the entire 15-nation single currency area with it.
With German Eurozone partners such as France, Italy, Spain and Ireland also in the doldrums or worse, the bloc's gross domestic product (GDP) fell 0.2 per cent in the second quarter, the first contraction since monetary union.
If an economy shrinks for two consecutive quarters it is officially in recession.
Two of the main culprits in the ZEW figures were higher energy and food prices putting a squeeze on companies and consumers alike, pushing up costs for manufacturers and blowing a hole in household budgets.
Adding to the squeeze on firms has been the euro's seemingly inexorable rise against the dollar, up to just recently, which crimped export earnings.
