An index of German analyst and investor morale fell below zero for the first time in nearly two years in October, suggesting Europe’s largest economy is reeling from crises abroad and a weak euro zone, while weak German data has also hit the mood.
Mannheim-based think tank ZEW’s monthly survey of economic sentiment, published on Tuesday, tumbled for a tenth consecutive month to -3.6, signalling that investors generally expect the German economy to continue weakening over the medium term.
That was the weakest reading since November 2012.
It sent German Bund futures up to a day’s high, pushed German 10-year government bond yields down to a new record low and drove the euro to a day’s low against the dollar.
The German economy has taken a severe turn for the worse, with data last week showing exports, industrial orders and output all plunging by the largest amount since the height of the global financial crisis in 2009.
After steaming ahead in early 2014, it shrank by 0.2 per cent in the second quarter and some economists have cautioned it is heading for a technical recession, defined as two consecutive quarters of contraction.
The government is due to release revised growth forecasts later on Tuesday. A source in the ruling coalition has said Berlin will slash its forecast for this year and next to around 1.25 per cent - a measly rate compared with the government’s previous estimates of 1.8 and 2.0 per cent respectively.
ZEW president Clemens Fuest said while he could not rule out the possibility of Germany shrinking again between July and September, he did not expect to see a longer period of recession given the strong conditions for domestic demand.
“It can’t be excluded that the third quarter will turn out to be negative, but I wouldn’t expect a longer recession, mainly because the domestic fundamentals in Germany are solid,” Mr Fuest said.
While tensions over Ukraine were putting a downer on exports, the recovery of the US economy offered some hope so “the situation is not as bad as people seem to think currently”, Mr Fuest said.
Germany has come under criticism from other euro zone states for insisting on achieving its goal to reach a balanced budget next year even as the Europe’s economic powerhouse looks to be running out of steam and the euro zone economy is flagging.
Mr Fuest said that sticking to this target was not the best signal for the European Union and could be seen as dogmatic.
Reuters
