German investor confidence ebbs

German investor confidence has tumbled to the lowest level for more than a year, a leading economic institution reported yesterday…

German investor confidence has tumbled to the lowest level for more than a year, a leading economic institution reported yesterday.

The announcement came just hours after Mr Jean-Claude Trichet, European Central Bank (ECB) president, had talked about the continuing economic recovery of the euro zone.

The Mannheim-based ZEW institute said its expectations index for the euro zone's largest economy, based on the view of professional investors, had dropped from 45.3 in August to 38.4 this month, the lowest since June 2003. The ZEW said the "fading optimism" reflected worries about a deceleration in the world economy and "ambiguous data from the US".

Although the ZEW said the latest results were consistent with "a slight, medium-term recovery of the economy" and the index remained above its historical average, the gloom about Germany contrasted with upbeat statements on the euro-zone economy from the ECB. On Monday, Mr Trichet talked about a "gradual recovery" continuing in the region and a strengthening of the global economy at the start of the third quarter of this year.

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Mr Julien Seetharamdoo, economist at Capital Economics, said that the unexpectedly large fall in the ZEW index showed "that investors share our view that the ECB is too optimistic on growth".

Mr Holger Schmieding, economist at Bank of America, said: "We see the ZEW as a stern warning to the ECB: the economy is less robust than it seems to believe." The ECB had taken a more hawkish tone recently, he said, "but we continue to believe that a modest deceleration in the pace of euro-zone growth in the second half of 2004 will surprise the ECB and prevent any ECB rate hike well into 2005".

The ZEW said the fall in optimism about the world outlook would hit Germany because its growth was being driven mainly by exports. Domestic demand was not giving any stimulus, while high oil prices would act as a damping factor.