German investor sentiment declined for the third month in a row to its lowest level in six months, adding to signs that the euro area debt crisis is hurting the outlook for the region's biggest economy.
The ZEW Indicator of Economic Sentiment dropped to minus 19.6 points from minus 16.9 in June. That was slightly better than economists' forecast for a score of minus 20.
The latest score was the lowest since January's minus 21.6. It was also below the historical average of 24.
"This deceleration was probably attributable to the easing of the sovereign debt crisis after the recent EU summit, which has significantly assuaged uncertainty in the markets and has made some of the analysts polled somewhat more confident about the future," Commerzbank analyst Ralph Solveen said.
But, the risks should not be underestimated, ZEW President Wolfgang Franz warned. The German economy is weighed by the weak demand for its exports from within Eurozone as well as from its other important partner countries that are facing slowdown in growth, he said.
The current conditions index fell to 21.1 from 33.2. The latest reading was the lowest since July 2010, when it was 14.6. Economists were looking for a score of 30 for July.
"Looking at the German economy, available monthly hard data so far look actually better than the latest drop of confidence indicators might suggest," ING Bank Senior Economist Carsten Brzeski said.
"The economy has not yet escaped the risk of a contraction in the second quarter but a severe deterioration, as in most other Eurozone countries, should be avoided."
German industrial orders and production rebounded in May led by higher external demand. But, the latest Purchasing Managers' survey by Markit Economics revealed that Germany's private sector output recorded the steepest contraction in three years in June.
Analysts say the recent rebound in some German indicators is unlikely to last long with demand set to weaken in the coming months amid slowing global growth. Markets are waiting for the latest Ifo and PMI figures to get a clearer picture on the health of the German economy.
The index of investor sentiment for Eurozone also declined in July, down to minus 22.3 from minus 20.1 in June. The current conditions index edged up 0.3 points to minus 72.9.
The crisis-plagued Eurozone is still expected to shrink 0.3 percent this year, the International Monetary Fund said yesterday. The 2013 growth forecast for the currency-bloc was cut to 0.7 percent from 0.9 percent.
Germany is expected to grow 1.0 percent this year, better than the 0.6 growth in April, the lender said. Next year, the economy is seen expanding 1.4 percent, which is less than the 1.5 percent forecast earlier.
by RTT Staff Writer
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