ZEW sentiment slides over Italian worries
German investor sentiment has fallen to the lowest reading since the eurozone debt crisis, according to a report from the ZEW Institute, but may have since improved as worries over Italy receded.
German sentiment fell to a balance of -16.1 points in June from -8.2 in May, worse than the -14.0 expected. This is the lowest reading since September 2012 and well below the long-term average of 23.3 points.
The survey measures investor sentiment, reflecting the difference between the share of investors that are optimistic and the share of analysts that are pessimistic.
The ZEW survey of German institutional investors' views on the eurozone economy tumbled into a negative balance of -12.6 for June from the reading of 2.4 a month earlier, with the market having expected a reading just about flat.
“The recent escalation in the trade dispute with the United States as well as fears over the new Italian government pursuing a policy which potentially destabilises the financial markets have left their mark on the economic outlook for Germany,” said ZEW president Prof Achim Wambach.
"On top of this, German industry has been reporting worse than expected figures for exports, production and incoming orders for April. As a result, the economic outlook for the next six months has worsened considerably."
Jennifer McKeown at Capital Economics said the drop in investor sentiment index will largely have reflected fears about Italy, which have since eased.
"While the German economy is slowing, the situation is considerably better than the survey suggests."
She noted that the survey was taken in the two weeks running up to yesterday, "so most responses will have been from a time when worries about Italy were more intense than they are now".
She also pointed out that the ZEW index has a very weak relationship with German GDP growth.
"Business surveys including the Ifo and PMI have had a stronger relationship with growth and they point to a relatively modest slowdown from Q1’s annual pace of 2.3%. Assuming that the Italian Government sticks to its recent reassuring line and that President Trump’s protectionist threats are not met with stronger action, financial market sentiment should regain some lost ground. In all, while German growth has come off the boil, we expect the economy to put in a strong performance this year and next, expanding at a pace of around 2%."