Eurozone debt crisis hits German investor confidence

INVESTOR confidence in Germany, Europe’s largest economy, dropped to the lowest in two-and-a-half years in June as the region’s debt crisis dimmed the economic outlook.

The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, fell to -9 from 3.1 in May.

That’s the lowest since January, 2009. Economists expected a decline to -3, according to the median of 37 estimates in a Bloomberg News survey.

Germany’s benchmark DAX index has shed about 4% since reaching this year’s high on May 2 as investors grow increasingly concerned that Greece will default on its debts.

The US economy is also slowing, clouding export prospects. So far, Germany’s economy remains unscathed. The Bundesbank on June 10 raised its growth forecast for this year to 3.1% from 2.5%, saying the country is enjoying a “broad-based upturn.”

“The ZEW’s drop looks scary at first and was no doubt prompted by the cooling in the US economy and the ongoing Greek saga,” said Jens Kramer, an economist at NordLB in Hanover. “However, bearing in mind that the German economy was showing signs of overheating in recent months, it merely signals a welcome slowdown in growth, not a collapse.”

ZEW’s gauge of current economic conditions eased to 87.6 from 91.5.

Companies have ramped up investment and hiring to meet booming orders from Asian markets, helping drive economic expansion of 1.5% in the first quarter.

Germany’s BMW, the world’s largest maker of luxury cars, said on June 8 that it had the most successful May ever, with deliveries rising 22%.

Still, Celesio, Europe’s biggest drug wholesaler, said on June 16 that profit may fall this year, partly as austerity measures crimp spending in European markets.

The IMF last week cut its forecast for US growth in 2011 for the second time in two months. It said that further setbacks to the economic recovery along with potential contagion from the European debt crisis pose increasing threats to global growth.

In Europe, governments are struggling to restore investor confidence and avert the region’s first sovereign default.

European economic confidence fell for a third month in May and manufacturing growth weakened.

The longer the crisis drags on, “the worse the risk to other countries,” Goldman Sachs Asset Management chairman, Jim O’Neill, said last week.