A leading confidence index in Germany has tumbled unexpectedly as financial analysts and institutional investors worry about the negative effects of slowing global growth on the stuttering German economy.
The ZEW economic research institute's economic expectations index, based on a poll of 298 analysts and institutional investors, slumped by 6.2 points to plus 13.9 points in May, ZEW said in a statement. Analysts had been expecting a modest rise to around 22 points.
'The reason the renewed decline in economic expectations is likely to be concern that growth of the global economy is losing momentum,' said ZEW president Wolfgang Franz. 'With domestic demand still weak, the German economy is very dependent on global economic developments,' he added.
Separate figures showed that the German economy saw a sharp rebound in activity driven solely by exports in the first three months of this year.
Final figures from the federal statistics office Destatis showed that German gross domestic product (GDP) rose by 1% in the period from January to March, the fastest quarterly rate of growth in four years. The final data confirmed a preliminary estimate published on May 12.
Destatis said first-quarter growth was driven primarily by exports, which grew by 2.9% in the January-March period. By contrast, imports were down 1.4% and state and consumer spending both contracted by 0.2%.
On the face of it, the rebound in first-quarter GDP offers a positive signal for the stuttering German economy, which slipped into a shallow recession at the end of last year.
But analysts said the latest data for the first two months of the second quarter indicated that the recovery was already petering out as high oil prices and slowing global growth put the brakes on the German economy.
Meanwhile, the OECD has slashed its growth forecasts for the German economy, predicting that the country will remain in breach of the EU's budget rules both this year and next year.
In its spring Economic Outlook, the OECD predicted that the German economy would grow by around 1.25% this year and then by 1.75% next year. This compares with 1.4% and 2.3% respectively in its autumn report.
* Ifo, the influential German economics think-tank, today added its voice to the growing chorus of supporters of a cut in euro zone interest rates to kick-start economic growth in the single currency area.
Shortly after the OEDC said that a reduction in borrowing costs was warranted in the 12 countries that share the euro, Ifo President Hans-Werner Sinn urged ECB President Jean-Claude Trichet to cut key rates.
'The euro zone economies need more investment. Put your foot on it, Monsieur Trichet,' Sinn wrote in an article for the weekly WirtschaftsWoche released ahead of publication on Thursday.
'An interest rate of 2% is too high,' Ifo chief Sinn wrote. 'What was appropriate during the worldwide boom cannot be right for a slump,' the expert argued. 'Looser monetary policy would make everything a lot easier.'
