German investor confidence has fallen sharply this month on worries about the persistent euro zone debt crisis and the impact of spending cuts by European governments, a survey showed Tuesday.
The ZEW institute's index, which measures investors' expectations for the next six months, sank to 28.7 points in June from 45.8 in May — its lowest level in more than a year.
That was worse than the slight drop to 42 that economists had expected in the often volatile index, but still above its historical average of 27.4 points.
ZEW said in a statement that the economic outlook remains positive, but sentiment is being weakened by "uncertainty about the future developments of the debt crisis and the perspective of necessary cuts in public expenditure in EU member countries."
Governments from Portugal to Germany are putting in place measures to cut back public spending as they seek to get their budget deficits under control, in turn raising fears that the austerity measures themselves could push the economy back into recession.
"The current recovery is still fragile," ZEW's president, Wolfgang Franz, noted. "Fiscal policy is therefore well advised to define necessary consolidation measures now, but to implement them not until 2011."
ZEW said experts' assessment of the current situation in Germany, Europe's biggest economy, improved this month — climbing by 13.7 points to minus 7.9, its highest level since late 2008.
The German economy has grown moderately over the past year, though that growth appears likely to slow later this year.
The ZEW index "now seems to capture the full fallout on sentiment" of the debt crisis, with a huge eurozone rescue package and the European Central Bank's move to buy government bonds and support money markets yet to stabilize confidence fully, said economist Carsten Brzeski of ING in Brussels
"Still, there should be no reason to panic," he added. "Looking at the fundamentals of the German economy, there is no reason for depression."
German exports have been helped by a wider global recovery, translating into rising industrial orders. The euro's weakness "provides welcome support for the coming months," Brzeski said.
ZEW, or Center for European Economic Research, surveyed 270 analysts between May 31 and June 14.
A separate survey found that the number of German companies viewing their current business situation as good outweighed the number who consider it bad this spring.
That was last the case at the start of 2009, at the very beginning of the economic crisis, the Association of German Chambers of Industry and Commerce said.
The survey of some 22,000 firms was conducted in April and May. The group said 28 percent viewed their situation as good, 18 percent pronounced it bad and the majority — 54 percent — satisfactory.
It also found slightly more firms looking to create jobs than cut them for the first time in two years.
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