Tumbling investors' confidence
Friday, 24 August 2007
Ralph Atkins
The Mannheim-based ZEW institute's "economic sentiment" indicator fell for the third consecutive month to the lowest level since December last year. At minus 6.9 points, down from 10.4 points in July, the index remains significantly below its historical average.
The latest fall is consistent with other economic signals suggesting that the best period in Germany's economic recovery is over, which will lower the overall performance of the 13-country eurozone.
The ZEW index rose strongly in the year to May as economic momentum in Europe's largest economy gathered. But analysts warned that, as in the past, the latest fall might be exaggerating the extent of the turnaround.
August's decline was less than monthly falls in previous financial crises over the past decade, said Andreas Rees, economist at UniCredit in Munich. "This is more a matter of psychology than fundamental facts. A meltdown for the German economy is not on the cards."
The uncertain economic outlook has made European Central Bank's task more difficult as it ponders whether to go ahead with a planned increase next month in eurozone interest rates. In recent days, increasing numbers of economists have come to the conclusion that the ECB will pause, especially after US Federal Reserve warnings about the potential risks to US economic growth.
But Jean-Claude Trichet, ECB president, has remained tight-lipped in recent days and is likely to postpone any decision until much nearer the September 6 meeting of the ECB's governing council.
Wolfgang Franz, ZEW president, blamed the fall in his institute's index on the US subprime market, saying the investors surveyed feared consequences for the German market. They were particularly gloomy about German corporate profitability, especially in the banking and insurance sector.
But Mr Franz added: "The crisis is first and foremost a problem of the US. Potential consequences for the German economy will be limited." The threat of a credit crunch came at a time when German corporate balance sheets were strong - although German exports might be hit by declining demand from US consumers. "The negative consequences for consumer confidence in Germany resulting from the drop in stock market prices will, however, most likely be limited."
..............................
Under syndication
arrangement with FE
The Mannheim-based ZEW institute's "economic sentiment" indicator fell for the third consecutive month to the lowest level since December last year. At minus 6.9 points, down from 10.4 points in July, the index remains significantly below its historical average.
The latest fall is consistent with other economic signals suggesting that the best period in Germany's economic recovery is over, which will lower the overall performance of the 13-country eurozone.
The ZEW index rose strongly in the year to May as economic momentum in Europe's largest economy gathered. But analysts warned that, as in the past, the latest fall might be exaggerating the extent of the turnaround.
August's decline was less than monthly falls in previous financial crises over the past decade, said Andreas Rees, economist at UniCredit in Munich. "This is more a matter of psychology than fundamental facts. A meltdown for the German economy is not on the cards."
The uncertain economic outlook has made European Central Bank's task more difficult as it ponders whether to go ahead with a planned increase next month in eurozone interest rates. In recent days, increasing numbers of economists have come to the conclusion that the ECB will pause, especially after US Federal Reserve warnings about the potential risks to US economic growth.
But Jean-Claude Trichet, ECB president, has remained tight-lipped in recent days and is likely to postpone any decision until much nearer the September 6 meeting of the ECB's governing council.
Wolfgang Franz, ZEW president, blamed the fall in his institute's index on the US subprime market, saying the investors surveyed feared consequences for the German market. They were particularly gloomy about German corporate profitability, especially in the banking and insurance sector.
But Mr Franz added: "The crisis is first and foremost a problem of the US. Potential consequences for the German economy will be limited." The threat of a credit crunch came at a time when German corporate balance sheets were strong - although German exports might be hit by declining demand from US consumers. "The negative consequences for consumer confidence in Germany resulting from the drop in stock market prices will, however, most likely be limited."
..............................
Under syndication
arrangement with FE