London View

Germany Hit By Confidence Issues

European stocks remained weak on Tuesday on persistent worries about the geopolitical drama while the euro currency weakened after German investor confidence fell more than forecast in the wake of weeks of fluctuating tensions between Ukraine and Russia. The Euro dropped 0.3% against the dollar while the Stoxx Europe 600 Index slipped 0.2%. German investor confidence reported by ZEW dropped for an eighth month as the crisis in Ukraine and sluggish Euro-area recovery dampened the outlook for Europe’s largest economy.

The ZEW survey of investors' current assessments fell to 44.3, and forthcoming economic expectations to just 8.6 – the latter number being the lowest since the end of 2012. That’s bad news for Germany, but the weakness in the euro is likely to be widely welcomed by European politicians and business that worry about the strength of the currency and its implications as disinflationary forces grow in the region.

There will be increased focus on German data following both this report and last month’s fall on the closely watched IFO survey indicator. Germany's second-quarter GDP growth is due on Thursday, with the expectation being that the economy contracted slightly during the period. Some forecasters have already lowered their predictions for German growth this year, and Bundesbank President Jens Weidmann recently told a German newspaper that the bank thinks growth for the year "is likely to fall slightly short of what we expected in our June projection." After a positive day yesterday, the DAX is now down by 0.87%.