German economic sentiment improved in September after easing for four straight months as the European Central Bank's bond purchase plan calmed analysts' fears of a looming break-up of the region, results of a closely watched survey revealed Tuesday.
The ZEW Indicator of Economic Sentiment rose by a better-than-expected 7.3 points to -18.2, data from the Mannheim-based Centre for European Economic Research showed. The score was forecast to rise to -20 in September.
The end of the downward trend suggests that weakening will be rather moderate. However, the negative reading indicates that the financial market experts estimate the German economy to lose momentum over the next six months.
"The European Central Bank's announcement to purchase government bonds, which is a problematic decision, might nevertheless have contributed to the improvement of the economic sentiment," said ZEW President Wolfgang Franz.
On the other hand, the assessment of the current economic situation fell by 5.6 points to 12.6 in September. Moreover, the index reading was below the expected level of 18.
The Germany's top court last week cleared the way for the ratification of the European Stability Mechanism, rejecting temporary injunctions against the bailout fund and the fiscal compact in its much-anticipated judgment.
The evaluation of the experts' responses before and after the action showed no significant differences on economic confidence, ZEW said. About 263 analysts participated in the survey conducted between August 31 and September 17.
Capital Economics Senior European Economist Jennifer McKeown said that the economic sentiment index looks consistent with a fall in annual GDP growth to about zero from 1 percent in the second quarter, although it has never been very reliable.
Last week, Germany's IfW think tank downgraded its growth projection for both 2012 and 2013 to 0.8 percent and 1.1 percent respectively due to weak domestic investment and slowing global growth.
The largest Eurozone economy expanded 0.3 percent in the June quarter as robust growth in exports and domestic spending help offset a contraction in investment. However, the rate of expansion was slower than the 0.5 percent growth seen in the previous quarter.
Spreading debt woes forced the Organization for Economic Co-operation Development to downgrade the growth forecast for Germany to 0.8 percent this year from 1.2 percent.
For euro area, economic expectations improved significantly by 17.4 points to -3.8 points in September. Meanwhile, the indicator for the current economic situation dropped slightly by 1.2 points to -76.3.
by RTT Staff Writer
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