U.S. News

German Investor Confidence Slips Unexpectedly in June


Investor and business confidence in Germany slipped unexpectedly in June, putting a halt to six straight months of increases, with development in Europe's biggest economy expected to hold steady but not gain momentum in the near-term.

The closely watched index of German sentiment released by the ZEW, or Center for European Economic Research, fell unexpectedly to 20.3 points in June compared to 24 points in May and 16.5 points in April.

Analysts polled by Dow Jones Newswires had expected the reading to come in at 29 points. Some blamed the slip on concerns that the European Central Bank is likely to keep raising its main interest rate this year and on a recent slide in share prices on the German stock exchange.

But the Mannheim-based center said the figure was not cause for alarm or a sign that Germany's solid economic turnaround had come to an end.

"The assessment of the current economic situation is still excellent, but the economic development of Germany is not expected to further gain momentum," ZEW President Wolfgang Franz said. "Nevertheless, the assessment of the business situation and the expectations still signal good economic perspectives for Germany."

The center's assessment of the current business situation rose for a second straight month, rising to 88.7 points in June from 88 points in May and 76.9 points in April. That, said ZEW, was a new high for the figure, despite a slowing in the country's manufacturing surge.

Economic expectations for the 13-nation euro zone were down, falling by 3.3 points to 19 points compared with 22.3 points in May and 10.7 points in April.

Germany's Growth

Despite the decrease, Franz said the country's growth was unabated, due in large part to the improving labor market and lower unemployment -- currently at 9.1% for the first time since 2002.

"Perhaps the recent temporary setback in stock prices, which was already reversed over previous days, has negatively affected early reports of financial market experts to the ZEW," said Alexander Koch, an economist with Unicredit/HVB in Munich, referring to a 5% slide by Germany's DAX index earlier this month.

"In any case, despite the current setback, the general strong outlook for the German economy has not been clouded," Koch said. He noted that strong demand from abroad and increasing signs of a gradual recovery of private spending after the value-added tax increase to 19% at the beginning of the year prompted forecasters to raise their outlook for German GDP growth in 2007 "on a large scale."

The German government is forecasting economic growth of 2.3% this year, while the Paris-based Organization for Economic Cooperation and Development is forecasting 2.8% growth, matching the actual growth recorded in 2006.

The Kiel-based Institute for the World Economy, or IfW, said last week it expects German growth to rise to 3.2% this year and 2.7% next year on strong domestic demand.

Germany was plagued for several years by near-zero economic growth and double-digit unemployment.

The jobless rate peaked at 12.6% in February 2005, when the number of Germans out of work reached a post-World War II record of 5.216 million.

The ZEW polled 293 analysts and institutional investors for the index.