– Adds Comments From ZEW Economist

Germany Expectations Current Conditions
————————————————————-
July -19.6 +21.1

MNI survey median: -20.0 +31.2
MNI survey range: -25.0 to -5.0 +25.0 to +35.0

June -16.9 +33.2
—

FRANKFURT (MNI) – Investors’ outlook for the German economy over
the next six months eroded slightly less than generally expected in
July, but their view of the current situation surprised to the downside,
the Centre for European Economic Research (ZEW) reported on Tuesday.

The ZEW’s economic sentiment indicator fell for the third
consecutive month, slipping 2.7 points to -19.6, its lowest level since
January. Most analysts had expected a steeper slide.

“The decline of the economic expectations concerning the end of
2012 is flattening out gently,” the ZEW President Wolfgang Franz said in
a press release. “This could possibly be an early sign of an encouraging
development in 2013.”

Franz, however, warned not to underestimate risks to the economy.
“Besides the weak demand from the Eurozone for German exports, the
German economy is also burdened by weakening growth dynamics in other
important partner countries.”

ZEW economist Michael Schroeder said it appeared that the
expectations indicator had now bottomed out. He said survey participants
forecast on average 0.3% quarterly growth from the second quarter
through the end of this year.

“A majority of participants still expect unchanged ECB interest
rates for the coming six months,” Schroeder said. “But the share
expecting a reduction is now increasing.” He said no more than 10% of
participants had submitted their answers before the ECB’s 25-bp rate cut
earlier this month.

ZEW’s current situation index fell more than expected by 12.1
points to a two-year low of +21.1.

“Latest stock market stabilisation, the ECB’s rate cut, the weaker
euro exchange rate and lower oil prices have all not succeeded in
brightening up German investors,” commented ING analyst Carsten Brzeski.

Economic activity no doubt slowed significantly in 2Q after a 0.5%
rebound in 1Q, with industry output for April-May 0.6% below the 1Q
average. Still, the surprise 1.6% rebound in May increased chances for
stable production in 2Q, the Economics Ministry said, adding that sector
conditions remain “good”.

Manufacturers themselves appear less optimistic. The Ifo
institute’s sector sentiment indicator fell to a 27-month low in June,
as expectations for production and orders eroded.

Germany’s factory PMI slipped to a three-year low in June (45.0).
With the services stagnant (49.9), the composite PMI (48.1) flagged the
fastest rate of contraction in the private sector since mid-2009.

Yet the risk of a “very modest drop” in German output pales in
comparison with the situation in other economies, noted Markit chief
economist Chris Williamson. “Output in Italy looks to have fallen by 1%
in the second quarter, while declines of 0.6% and 0.5% are signalled for
Spain and France, respectively.”

The ZEW’s economic sentiment indicator for the Eurozone fell 2.2
points to -22.3 in July. Bucking the trend, the EMU current situation
component recovered 0.3 point to -72.9.

Earlier this month, Sentix reported that its Eurozone investor
sentiment indicator fell for the fourth consecutive time to a three-year
low. The current situation component was unchanged, while the
expectations component fell 1.5 points to its lowest level for the year.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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