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German investor confidence sinks to 1.5-year low

Investment sentiment in Germany fell to its lowest level in nearly 1.5 years in May amid concern recovery in Europe's top economy will lose momentum, a new survey found on Tuesday.

FRANKFURT: Investment sentiment in Germany fell to the lowest level for nearly 1.5 years in May amid concern that growth in Europe's top economy is set to lose momentum, a survey found on Tuesday.

The widely watched investor confidence index calculated by the ZEW economic institute fell by 10.1 points to 33.1 points in May, it said in a statement.

It was the fifth monthly decline running in the index, bringing it to its lowest level since January 2013.

Analysts had been projecting a much softer drop to 41 points.

"Already, there are indications that Germany will not be able to maintain this fast pace of growth," said ZEW president Clemens Fuest.

"Nevertheless, one can assume a positive underlying trend for the economic development for the year 2014. The decline of the experts' economic expectations for Germany should be seen against the backdrop of a strong economic development in the first quarter," Fuest said.

Official first-quarter growth data are scheduled for release later this week.

However, analysts are pencilling in an acceleration in gross domestic product (GDP) growth to 0.7 percent in the period from January to March. In the preceding three months, the German economy had grown by 0.4 percent.

Nevertheless, analysts believe the first-quarter growth figures will have been boosted by the unusually mild winter, which favours key industries such as construction.

Just last month, the German central bank or Bundesbank warned that growth is heading for a "noticeable" slowdown in the second quarter, even if the underlying trend remains positive.

The economy ministry agreed.

"Following growth of 0.4 percent in final quarter of 2013, the economic performance will have gathered strength in the first quarter of 2014. By contrast, the spring upturn will be slightly weaker than usual," the ministry warned in a statement.

Nevertheless, "overall, the recovery has firmed and broadened," it insisted.

For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

The sub-index measuring financial market players' view of the current economic situation in Germany rose by 2.6 points to 62.1 points in May, its highest level since July 2011.

On this basis, analysts were confident that the current uptrend remains intact.

"Overall, the data suggest that the current economic situation is not being tangibly hurt by the uncertainty surrounding the situation in Ukraine," said BayernLB economist Stefan Kipar.

"The effect on the economic performance of Germany and the euro should have been very small so far," the expert said.

Natixis economist Johannes Gareis said that the May ZEW reading showed that investors "are increasingly cautious."

Nevertheless, "forward-looking sentiment is still at a comfortable level, suggesting that the expansion of the German economy is currently not at significant risk," he said.

But Capital Economics economist Jessica Hinds was less optimistic.

"The fifth consecutive decline ... suggests that the German recovery might not gain much pace from here," she said.

As survey responses were taken between April 28 and May 12, "it seems that investors were not overly impressed by the European Central Bank's pledge (last week) to 'act again' in June," Hinds said.

"Risks for the German economy are increasing," said ING DiBa economist Carsten Brzeski.

"The geopolitical conflict close to Germany's backyard, concerns about the Chinese economy and the recent equity market correction have clearly dented investors' optimism.

"After the excellent start to the year, the German economy is now starting to feel some headwinds," Brzeski said.

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