German investor confidence plummets over eurozone’s debt crisis

GERMAN investor confidence fell to the lowest level in more than two-and-a-half years in September as Europe’s debt crisis and a global slowdown damped the outlook for growth.

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, declined to minus 43.3 from minus 37.6 in August. That’s the lowest since December 2008. Economists expected a drop to minus 45, according to the median of 37 estimates in a Bloomberg News survey.

Germany’s benchmark DAX share index has plunged 25% since late July as the global outlook worsens and Europe’s debt crisis erodes confidence in its banking sector. The European Commission last week cut its euro-area growth forecasts for the second half and warned the economy may come “close to standstill at year-end.” Standard & Poor’s on Monday lowered Italy’s credit rating, saying weaker growth may mean the nation won’t be able to reduce the region’s second-largest debt load.

“There’s almost only bad news at the moment,” said Carsten Klude, head of investment strategy at MM Warburg & Co in Hamburg. “The sovereign debt crisis and the global economic slowdown both continue to burden sentiment. We don’t expect Germany to slide into recession, but growth will be much weaker in the months ahead.”

ZEW said its gauge of current conditions fell to 43.6, the lowest since July last year, from 53.5.

German gross domestic product rose just 0.1% in the second quarter after jumping 1.3% in the first three months of the year. Growth in the euro area, Germany’s main export market, slowed to 0.2% from 0.8% as governments from Greece to Spain cut spending to rein in budget deficits. The 17-nation economy will expand 0.2% in the third quarter and 0.1% in the fourth, the European Commission predicted on September 15.

“The decline in the ZEW clearly reflects the risk of the economy deteriorating further,” said Aline Schuiling, an economist at ABN Amro in Amsterdam.