ZEW shows dark clouds from China over German economy

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Bradenburg Gate in Germany.

The German ZEW indicator of economic sentiment for July missed analyst expectations, data released on Tuesday showed, prompting a drop in the euro and European stocks as investors grew nervous about the health of the euro zone's biggest economy.

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The indicator fell by 2.2 points compared to the previous month and is now hovering at 36.3 points. Analysts had expected the number to come in at 39.6.

The institute said experts were still sticking to their overall positive forecast, illustrating their confidence in the robustness of the German economy after rather weak figures for industrial production and foreign trade released recently.

"New dark clouds have started to black out growth prospects of the German economy. These clouds are not coming from the South but from the East. The stuttering and now slowing Chinese economy is a clear cause of concern," ING senior economist Carsten Brzeski said.

"China has become the fifth most important market for German exporters, accounting for roughly 6 percent of total exports. Obviously, a Chinese hard landing would not leave the German economy unharmed."