German ZEW investor sentiment index stabilises

Investment sentiment in Germany stabilised in May following a sharp decline the previous month, partly owing to the European Central Bank\'s decision to cut interest rates, analysts said on Tuesday. The widely watched investor confidence index calculated by the ZEW economic institute rose fractionally by 0.1 point to 36.4 points in May after falling sharply last month. The May reading nevertheless fell short of expectations, as analysts had been projecting a more pronounced increase to around 39.5 points. \"After a sharp decline last month, the ZEW indicator of economic sentiment for Germany has moved sideways in May 2013,\" the think-tank said in a statement. \"Despite mostly positive economic data for the German economy, the ZEW indicator remains at the level of the previous month. This may be due to the still poor economic situation in the eurozone, that is also reflected by the recent ECB interest rate cut,\" said ZEW president Clemens Fuest. 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 slipped by 0.3 point to 8.9 points in May. A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable. Despite this month\'s rather lacklustre performance, analysts were nevertheless confident that Germany was back on the path of growth following the economic contraction at the end of last year. \"Germany keeps heading for growth, but financial analysts remain cautious about the strength of the recovery,\" said Berenberg Bank economist Christian Schulz. \"The ECB rate cut, receding risks in the eurozone and optimism about global growth helped, but competition from Japan, turbo-charged by the weak yen, weighs on optimism for export-dependent Germany,\" the expert said. At its regular policy meeting on Thursday, the ECB decided to cut its key rate to an all-time low of 0.50 percent to give the eurozone\'s flailing economy a much-needed boost. Postbank economist Thilo Heidrich said that analysts had probably been expecting a bigger increase in the ZEW barometer this month in the light of the recent buoyant stock markets and favourable industrial data. \"At the same time, the data suggest that the analysts are sticking to their forecast for a stabilisation or even slight recovery in the economy,\" Heidrich said. Newedge Strategy analyst Annalisa Piazza also attributed the stable ZEW data to \"the reduced volatility in financial markets and relative strength of equities in the past few weeks.\" And recent political developments in Italy will also have helped support confidence, she argued. Johannes Gareis at Natixis said \"today\'s reading indicates that financial investors are neither dazzled by the recent positive signs from the German economy (rising exports and industrial output), nor by the ECB\'s recent rate cut. \"On the other hand, the ZEW sentiment and current condition component have neither suffered a further drop in May and consequently remain still in positive territory, which is in line with our scenario for a further stabilisation of the German economy in the second quarter,\" Gareis concluded.