Berlin: German investor confidence dropped more than forecast to a 16-month low in August, suggesting economic growth will slow from the record-breaking pace set in the second quarter.
The Mannheim-based ZEW Centre for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months ahead, fell to 14 from 21.2 in July, its fourth straight decline. Economists had forecast a drop to 20, according to the median of 33 estimates in a Bloomberg News survey.
While Germany's economy grew at the fastest pace in two decades in the three months through June, the recovery is being driven by exports and there are signs demand will wane. Factory orders in the US, the world's biggest economy, fell more than economists forecast in June, while China's manufacturing grew at the slowest pace in 17 months in July. European governments are also cutting spending to rein in ballooning budget deficits, threatening to slow growth across the 16-nation euro region, Germany's biggest export market.
ZEW's report is "by no means as bad as it seems," said Ken Wattret, chief euro-area economist at BNP Paribas SA in London. "The current assessment rocketed up, meaning the economy is doing really well and everyone expects that it's going to be cooling toward the end of the year."
ZEW's gauge of current conditions jumped to 44.3, the highest since January 2008, from 14.6 in July. The euro initially fell a quarter of a cent before rebounding to $1.2902 at 11.16am in Frankfurt.
ZEW said a third of the responses to its survey came in after the Federal Statistics Office reported on August 13 that gross domestic product rose 2.2 per cent in the second quarter from the first, the fastest growth since records for a reunified Germany began in 1991.
The data suggest the economy, which contracted 4.7 per cent last year, will grow "far more than 2 per cent in 2010," Economy Minister Rainer Bruederle said after the report. UniCredit raised its 2010 growth forecast to 3.5 per cent from 2 per cent.
"German GDP should post a very healthy expansion of at least 3 per cent this year thanks to a surge in exports," said Jennifer McKeown, an economist at Capital Economics Ltd. in London.
