German Investor Confidence Worsens on Subprime Fears


German investor confidence suffered a bigger-than-expected drop for the fourth consecutive month, a closely watched survey showed Tuesday, pushed down by sustained worries over the U.S. subprime mortgage crisis and how that could affect Europe's biggest economy.

The ZEW institute's monthly index, which measures investors' economic expectations for the next six months, dropped to minus 18.1 points in September from minus 6.9 points in August and from 10.4 in July.

Economists polled by Dow Jones Newswires had expected consumer confidence to worsen to minus 17 points. The reading was considerably lower than the historical average of plus 32.4 points.

ZEW said that the experts it surveyed saw more potential risks from the crisis over subprime mortgages -- centering on defaults on loans made to people with shaky creditworthiness -- radiating beyond the U.S. economy and into Germany, the world's biggest exporter.

"The second considerable decline of business expectations since the beginning of the subprime crisis makes clear that the financial experts do not rule out the possibility that the crisis could spill over to the German economy," the ZEW, or Center for European Economic Research said in its monthly report. "In particular, German exports might be hit by an economic downturn in the U.S."

U.S. markets, and others worldwide, have been roiled by the subprime crisis which, in turn, has caused a run on liquidity by banks in Europe.

That, accompanied by the euro's rise against the dollar -- hitting an all-time high of $1.3927 last Thursday -- appeared to weigh heavily on the ZEW report.

Andreas Rees, an economist at HVB/UniCredit said the rising euro, high oil prices and uncertainty spinning outward from the subprime crisis were all potent detractors.

"In our view, economists and investors are currently sailing in uncharted waters," he said in a research note. "Nobody has really a clue about how long the crisis situation on financial markets will persist."

Lowest Overall Decline

This month's overall decline was the fourth consecutive drop in the ZEW index, and put it at its lowest level since last December's reading of minus 19.

ZEW President Wolfgang Franz told German broadcaster ARD that the strong euro could slow down Germany's economic expansion. His remarks echoed similar comments by the think tank, which has warned that German exports -- long the chief motor of the nation's economy -- could be hampered by lower purchasing power of U.S. consumers.

But Franz said that Germany's economy remained sound, though the dimmer views taken by investors could proffer up more negativity.

"The higher uncertainty and the loss of confidence may also have a negative impact on the dynamics of the development of the German economy," he said in a statement.

Ahead of the ZEW report, German Finance Minister Peer Steinbrueck said that the ongoing crisis must be considered and not brushed aside.

"It has to be taken seriously," he said. "But I advise against descending into hysteria."

The Mannheim-based ZEW polled 304 analysts and institutional investors for the monthly survey.