– Adds Comments From ZEW Expert On Greek Impact, Risks Of Recession

Germany Expectations Current Conditions
————————————————————-
June -16.9 +33.2

MNI survey median: +2.0 +40.0
MNI survey range: -10.0 to +9.6 +38.0 to +43.8

May +10.8 +44.1
—

FRANKFURT (MNI) – Investors have become more negative on Germany’s
six-month outlook than even the most pessimistic analysts had expected,
while their assessment of the current economic situation has also fallen
back more than forecast, the Centre for European Economic Research (ZEW)
said on Tuesday.

After a 12.6-point downturn in May, the ZEW’s economic sentiment
indicator lost an additional 27.7 points in June to -16.9, its sharpest
monthly decline since October 1998 and its lowest level since January.

The deteriorating conditions in Spain’s banking sector along with
uncertainty regarding the Greek election results likely contributed to
the erosion in sentiment, ZEW said.

While most of the survey results were collected before the Greek
elections on Sunday, there was no “strong change” in the 30 responses
received afterwards, said ZEW expert Michael Schroeder.

“The financial market experts’ expectations are a strong warning
against a too optimistic assessment of Germany’s economic perspectives
in the remainder of this year,” said ZEW President Wolfgang Franz. “The
risks of a pronounced decline in economic activity in countries with
close trade ties to Germany are very clear.”

Comparing the latest survey results to the Bundesbank’s more
optimistic outlook for the German economy, Schroeder noted simply that
ZEW’s results were more up-to-date. Yet they do not signal expectations
for a recession, despite particularly negative responses for the banking
and financial sectors, he added.

The current situation index also fell further than anyone had
expected this month, dropping 10.9 points to +33.2, also the lowest
level in five months.

Recent hard and soft data suggest that 2Q is unlikely to see
anything similar to 1Q’s 0.5% jump in economic activity, as a slowing
global economy and a debt crisis continue to weigh on demand and morale.

Weak domestic and foreign demand lowered industrial new orders by
more than 2% in April. The manufacturing PMI signaled a further decline
in May (43.6) which, along with contracting output (44.6), pulled the
headline index to a near three-year low (45.2).

The Bundesbank warned this week that uncertainty surrounding
economic prospects had increased “notably” in recent weeks. “It still
has to be seen to what extent the latest exacerbation of the debt crisis
and signs of a slowing global economy will weigh on Germany’s economic
outlook,” the central bank said.

The ZEW’s Eurozone economic expectations index fell 17.7 points to
the five-month low of -20.1, while the current situation component shed
13 points to -73.2 – a near two-and-a-half year low, ZEW said.

Earlier this month, Sentix reported that its Eurozone Investor
Sentiment Indicator fell for the third consecutive month in June to its
lowest point since May 2009.

“The recession in Euroland is deepening,” Sentix said. “We are no
longer just looking at a downturn.”

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

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