China, market turmoil spook German investors

Worries about slowing growth in China and the ensuing global stock market turmoil are souring investor sentiment in Germany at the start of the new year, a leading survey showed on Tuesday.
The investor confidence index calculated by the ZEW economic institute declined by 5.9 points to 10.2 points in January, the think tank said in a statement.

"The beginning of the new year is characterised by capital market turmoil in China, which has also led to significant share price declines in Germany," said Sascha Steffen, ZEW's head of international finance and financial management research.

"As in the previous year, weak economic growth in China and other important emerging markets is putting a strain on Germany's economic outlook," Steffen said.

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 4.7 points to 59.7 points in January, ZEW said.

Capital Economics economist Jennifer McKeown said the decline in the index "confirms that the recent turbulence in global financial markets and the soft tone of the domestic hard data have dented investor sentiment."

The expert said that "admittedly, the rise in the current conditions index to a high level is an encouraging sign, but it is at odds with the weaker tone of the hard data.

"In all, while we do not see German growth grinding to a halt, we still envisage a slowdown from about 1.5 percent in 2015 to one percent or so this year," McKeown said.

BayernLB economist Stefan Kipar pointed out that the ZEW barometer has only limited informative value with regard to gross domestic product (GDP) growth.

"It offers no reason to slide into pessimism," he argued, pointing out that the eurozone and German economies in particular would continue to benefit from the renewed drop in oil prices and robust consumer demand.

"Too much mustn't be read into the decline in the ZEW index," Kipar said.