(Updates with economist’s comment in fourth paragraph.)
June 21 (Bloomberg) -- Investor confidence in Germany, Europe’s largest economy, dropped to the lowest in 2 1/2 years in June as the region’s debt crisis dimmed the economic outlook.
The ZEW Center 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 percent since reaching this year’s high on May 2 as investors grow increasingly concerned that Greece will default on its debts. The U.S. 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 percent from 2.5 percent, 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 U.S. 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. The euro fell about a quarter of a U.S. cent after the report before recovering to $1.4334 at noon in Frankfurt.
Companies have ramped up investment and hiring to meet booming orders from Asian markets, helping drive economic expansion of 1.5 percent in the first quarter.
Germany’s Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, said on June 8 that it had the most successful May ever, with deliveries rising 22 percent.
Still, Celesio AG, 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 worsening debt crisis in several European countries is affecting our business more and more strongly,” Chief Executive Officer Fritz Oesterle said that day.
The International Monetary Fund on June 17 cut its forecast for U.S. growth in 2011 for the second time in two months. The Washington-based fund 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. The government of Greek Prime Minister George Papandreou is teetering after European leaders failed to agree on releasing a loan payment that would spare Greece from default as domestic resistance to budget cuts intensifies. Papandreou faces a vote of confidence in parliament later today.
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 on June 17.
Investors “are certainly too pessimistic,” said Alexander Koch, an economist at UniCredit Group in Munich. “The German economy will cool, but that doesn’t mean growth will be very weak and that we’re entering a downturn.”
--With assistance from Kristian Siedenburg in Budapest, Allison Connolly and Jana Randow in Frankfurt, Chris Reiter in Berlin and Christian Vits and Rajiv Sekhri in Mannheim. Editors: Simone Meier, Matthew Brockett
To contact the reporters on this story: Jeff Black in Frankfurt at Jblack25@bloomberg.net; Gabi Thesing in London at email@example.com
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