(RTTNews) - German financial market participants' six-month outlook dropped sharply in June as mounting debt worries in Eurozone weighed on sentiment, results of a key survey revealed Tuesday.
The economic sentiment indicator for the biggest Eurozone economy plunged to 28.7 from 45.8 in May, the Mannheim-based Centre for European Economic Research, or ZEW, said Tuesday. That was the lowest level since April 2009 and was broadly in line with its long-run average. Meanwhile, the fall exceeded economists' forecast for a slight decline to 42.
"June's drop in German ZEW investor sentiment is another sign that fears about peripheral debt are damaging sentiment towards core Eurozone economies," said Jennifer McKeown, an economist at Capital Economics.
According to ZEW, the economic sentiment was weakened by the uncertainty about the future developments of the debt crisis and the perspective of necessary cuts in public expenditure in EU member countries. Financial market experts expect the German economic recovery that can be observed in the second quarter 2010 to weaken towards the end of this year, the think tank said.
"The current recovery is still fragile," ZEW President Wolfgang Franz said. "Fiscal policy is therefore well advised to define necessary consolidation measures now, but to implement them not until 2011."
ING Bank economist Carsten Brzeski said the EUR 750 billion Eurozone's bail out package and the European Central Bank's latest measures to support bond and money markets have not yet, been sufficient to stabilise confidence. Still, the economist sees no reason to panic given the fundamentals of the German economy.
The German industry emerged from the winter dip rather impressively. Business confidence is strong, new orders keep on coming and the weak euro provides welcome support for the months ahead. The improvement reflected in ZEW's current conditions index, which climbed notably. In June, the corresponding indicator rose by 13.7 points to minus 7.9 points. It exceeded economists' expectation for an increase to minus 15 from May's minus 21.6.
"We still believe that the economy will grow at a stronger rate in Germany than in the Eurozone as a whole this year and Germany will barely be affected by the governments' savings measures," Commerzbank analyst Simon Junker said. The analyst continued that the second quarter should show the biggest plus in economic growth this year, as the catchup effect in construction will give additional impetus besides the continued recovery in the manufacturing sector.