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Germany's financial experts foresee slow recovery from the economic crisis in the next six months, a closely watched survey revealed Tuesday.
The Mannheim-based Centre for European Economic Research or ZEW, said its economic sentiment indicator for Germany decreased 2.1 points to 45.1 in February. Economists had forecast a reading of 41, down from 47.2 recorded in January. The sentiment indicator fell for a fifth month in February.
"Though we have passed through the deepest valleys of the depression, the worries about the labor market, budget deficits and the euro have not lessened," said ZEW President Wolfgang Franz. "There is the option that economic activity will move sideways with only minor ups and downs."
Nevertheless, the survey of up to 350 financial experts found that prospects for the retail and consumer goods sector and for the automotive industry remain poor. Moreover, the think tank said the experts gave a more pessimistic, though generally positive, view towards the business conditions in the export-oriented steel and chemicals sectors compared to the previous month.
"The outturn was not as bad as expected, the index remains above its long-run average and the fact that it is still in positive territory means that investors see conditions improving," said Jennifer McKeown, senior European economist at Capital Economics. The economist noted that the fall in investor sentiment probably reflects the Eurozone's fiscal problems more than a worse outlook for Germany. "The ZEW survey is unduly influenced by developments in financial markets and will have been damaged by worries that Germany will bear a heavy burden from any Greek bail-out."
The German economy showed some worrying signs at the end of 2009. Eurozone's biggest economy stagnated in the fourth quarter and industrial production unexpectedly dropped in December. The gross domestic product remained flat on a sequential basis in the fourth quarter, following a 0.7% rise in the previous three months, according to preliminary data published by the Federal Statistical Office on February 12.
Commerzbank analyst Ralph Solveen pointed out that the Greece crisis, a somewhat tighter monetary policy in China and weak figures from German industry for December are the possible factors behind the fall in the ZEW sentiment index. However, the economist said the recovery is likely to continue, driven by a reviving global economy and expansionary monetary policy. But, "the problems under the spotlight at the moment such as the major budget deficits will put the brake on growth in the months ahead," he warned.
Further, ZEW said financial experts' assessment of the current economic situation in Germany improved slightly in February. The corresponding indicator rose by 1.8 points to minus 54.8 points, while the consensus was minus 53. The current assessment component increased for the ninth consecutive month to its highest level since November 2008.
"The underlying trend remains good and the growth momentum of the German economy is fundamentally much stronger than the statistical stand-still that the fourth quarter suggests," said Carsten Brzeski, Senior Economist at ING Bank. "Once the winter is over and the snow has melted away, the real pattern of the recovery should become more visible," the economist added. ZEW's economic expectations index for the euro area decreased considerably in February by 6.2 points. The corresponding indicator is at 40.2 points now. The indicator for the current economic situation in the Eurozone improved by 0.6 points to minus 62.1 points.
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