German investor morale deteriorated more than expected in July, registering its first fall in a year and suggesting the recovery in the euro zone's largest economy will be bumpy.
The economic sentiment index fell to 41.8 points from 47.5 points in June, the ZEW economic research institute said today. Analysts polled by Reuters had forecast a July reading of 42.3.
"The economic outlook is worsening," said ZEW president Achim Wambach, attributing the decline to a fall in exports in May, political uncertainty in France and a lack of clarity about the European Central Bank's future monetary policy.
Germany's manufacturing sector is struggling to emerge from a deep downturn, with disappointing industrial orders in May.
"This means that the German economy will be dependent on private consumption, which will not be able to compensate for the tepid development in industry to such an extent that strong growth will ultimately be recorded," said Thomas Gitzel, chief economist at VP Bank.
By contrast, an assessment of the current economic situation in Germany slightly improved, rising to -68.9 from -73.8 in the previous month.
Michael Herzum, economist at Union Investment, sees reasons for the gain in confidence: real incomes are rising and loans are becoming more affordable, both pointing to an economic upturn.
However, it is also clear that the economic recovery is only modest, Herzum added. "The more likely election of Donald Trump as US president in November is unsettling the German economy."
In the past week, markets have shifted their focus towards rate cuts by the Federal Reserve, which have so far been welcomed as a positive rather than a sign of an imminent US recession, said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.
