World Economy

German economic optimism drops sharply in September

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Germans are turning increasingly pessimistic on their country's economy, as weakening emerging markets start to dampen the outlook, the latest index from the country's ZEW institute shows.

In its latest survey of financial forecasters, the ZEW economic expectations index for September showed a drop to 12.1 from 25.0 in August.

ZEW President Clemens Fuest attributed the fall to a worsening economic outlook in the developing world.

"The weakening economic development in emerging markets dampens the economic outlook for Germany's export-oriented economy. While economic growth in the second quarter was largely driven by external demand, it is becoming less likely that exports will stimulate growth in the near future," Fuest said in a statement accompanying the indexes' release.

ZEW's current conditions survey did however showed a slight bounce to 67.5 in September from 65.7 the month before and against expectations of a retreat to 64.0

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Some analysts believe the picture isn't as bad as the ZEW economic expectations index suggests.

"The discrepancy between current assessment and expectations has increased over the last months. To some extent, this widening is normal—the question on the future is relative to the current situation. An improvement of the current situation therefore always leads to a drop in the expectation component," Carsten Brzeski, chief economist at ING, said in a research note out after the ZEW index.

He noted however that the last time the discrepancy between current assessment and expectations was this wide was in 2011—shortly before the German economy slowed sharply.

"With hindsight, back then the ZEW turned out to be a good predictive indicator for German growth, as the economy almost stagnated in 2012," Brzeski said.

But Brzeski added: "The ZEW index should be taken with a pinch of salt" explaining that "over the last couple of months, the ZEW index has been more of a low-value snapshot rather than a fundamental confidence measurement or reliable predictor of future growth."

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