Frankfurt: German investor confidence declined for a third month in July as Europe's debt crisis threatens to cripple economic growth and banks undergo stress tests to prove their durability.
The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months ahead, fell to a 15-month low of 21.2 from 28.7 in June. Economists had forecast a drop to 25.3, according to the median of 34 forecasts in a Bloomberg News survey.
Governments across the 16-nation euro region are cutting spending to rein in excessive budget deficits, threatening to undermine the economic recovery. At the same time, regulators are carrying out stress tests on 91 lenders aimed at reassuring investors that banks have enough capital to withstand shocks.
"Investors are becoming increasingly worried about a deterioration of sentiment worldwide, which signals that Germany's export-led recovery will slow down before long," said Andreas Rees, chief German economist at UniCredit MIB in Munich. "We'll see an impact around the turn of the year. A double-dip is a serious risk scenario."
Euro rises
The euro rose after the report to $1.2572 from $1.245. The benchmark DAX share index resumed its climb after a brief dip. It gained 4 per cent last week.
Latest data suggest econ-omic growth accelerated in the second quarter. German exports surged 9.2 per cent in May, unemployment fell in June and business confidence unexpectedly rose to a two-year high. ZEW's gauge of current conditions turned positive for the first time in two years, jumping to 14.6 from minus 7.9 in June.
The Bundesbank on June 11 raised its growth forecasts, predicting expansion in Europe's largest economy of 1.9 per cent this year and 1.4 per cent in 2011, up from 1.6 per cent and 1.2 per cent respectively.
Driving force
Exports, which accounted for 41 per cent of gross domestic product last year, will be one of the "main driving forces," the central bank said.
Executives from Bayerische Motoren Werke, Volkswagen's Audi unit and Siemens credit the euro's 17 per cent decline against the dollar since November for boosting competitiveness and making revenue earned overseas worth more when they bring it home.
Volkswagen's sales in China surged 46 per cent in the first half of the year after the company introduced new models to attract consumers in the world's largest vehicle market.
