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German Investor Confidence Plummets To 7-1/2-year Low On Weaker Growth Outlook

germanyeconomic oct16 13aug19 lt

Germany's investor confidence dropped sharply in August to its lowest level since the end of 2011, adding fuel to fears of a recession in the biggest euro area economy.

The ZEW Indicator of Economic Sentiment for Germany tumbled to -44.1 from -24.5 in July, reaching its lowest level since December 2011, survey data from the ZEW - Leibniz Centre for European Economic Research showed Tuesday.

Economists had forecast a score of -28. The long-term average of the indicator is 21.6 points.

The current conditions index of the survey fell to -13.5 from -1.1 in the previous month. The score was the lowest since May 2010. Economists had expected a reading of -5.9.

"The ZEW Indicator of Economic Sentiment points to a significant deterioration in the outlook for the German economy," ZEW President Achim Wambach said.

The most recent escalation in the trade dispute between the US and China, the risk of competitive devaluations, and the increased likelihood of a no-deal Brexit place additional pressure on the already weak economic growth, he noted.

"This will most likely put a further strain on the development of German exports and industrial production," Wambach added.

The investor confidence index for Eurozone dropped to -43.6 from -20.3 in July. The current situation measure shed 3.9 points to -14.5.

The results are based on the ZEW Financial Market Test, conducted monthly among up to 300 experts from banks, insurance companies and financial departments of selected corporations.

The outlook for the German economy turned grimmer this year as escalating trade tensions hurt demand for its exports, a strong contributor to economic growth.

Further, the manufacturing sector, another crucial contributor to growth, is yet to fully rebound from a slowdown that started last year, mainly due to the sluggishness in the automobile sector.

Latest data showed that the labor market has started to show signs of being hurt by the economic slowdown that is fueled mainly by external factors, and the weaker momentum is reflecting in household spending, suggesting that the German domestic resilience is weakening.

The Federal Statistical Office is set to release the second quarter gross domestic product figures on Wednesday that are expected to reveal a 0.1 percent quarterly contraction.

In the first quarter, the German economy grew 0.4 percent quarterly, which was the first such increase in three quarters.

The Bundesbank, which predicted an economic contraction for the second quarter, downgraded its growth outlook for this year to 0.6 percent from 1.6 percent and that for next year to 1.2 percent from 1.6 percent.

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