German economic confidence weakened sharply to the weakest level since December 2012 as geopolitical tensions weighed on analyst expectations, the results of a closely watched survey from the Mannheim-based Centre for European Economic Research/ZEW showed Tuesday.
The indicator of economic sentiment plunged by 18.5 points to 8.6 in August, while it was forecast to drop to 17.
This was the eighth consecutive decline, with the index hitting the lowest since December 2012, when the reading was 6.9.
Similarly, assessment of current economic situation declined in August, with the corresponding index falling to 44.3 from 61.8 in July. The reading was the lowest since January and well below the expected score of 54.
Industrial output and incoming orders now suggest markedly reduced investment from the part of German firms against the backdrop of uncertain sales prospects. The institute said economic growth in Germany will be weaker in 2014 than expected.
Meanwhile, the ZEW economic sentiment for the Eurozone declined significantly in August. The indicator dropped by 24.4 points to 23.7. Likewise, the current economic situation index fell 2.3 points to minus 33.8.
The Federal Ministry for Economic Affairs and Energy said today the uncertainties emanating from Ukraine and the Middle East would moderate German economic momentum in the second quarter.
The uncertainties may outweigh the immediate effects of the imposed sanctions on Russia, it said. Nonetheless, the ministry said the positive economic trend is intact.
German GDP data to be released this Thursday is set to reveal stagnation at best in the second quarter, said Jennifer McKeown, a senior European economist at Capital Economics.
While a renewed expansion is likely in the third quarter and beyond, survey indicators suggest that the recovery peaked early this year before it had really gained any momentum, the economist noted.
Looking ahead, today's ZEW sends a worrying signal that the growth performance in the second quarter could suddenly morph from a one-off into an undesired trend, said ING Bank NV's economist Carsten Brzeski. Obviously, a further escalation of the crisis in Russia could start to really hurt the economy.
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