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Confidence among German analysts and investors fell to a 10-month low in May on worries about soaring oil prices, rising interest rates and weak domestic demand, a survey showed on Tuesday.
The Mannheim-based ZEW institute said its expectations indicator for Germany dropped for a fifth month to 46.4 from 49.7 in April, confounding economists' predictions of a fall to only 49.0.
The monthly ZEW survey provides a pointer to next Tuesday's closely-watched Ifo business climate index, based on a survey of some 7,000 companies. In April, the Ifo index rose unexpectedly, bolstering predictions of a mild recovery.
"Ifo will show whether business sentiment has improved further in an environment of buoyant demand from abroad and slightly better price competitiveness, or whether the rise in oil prices is already leaving its mark on the mood in the corporate sector," said Commerzbank economist Ralph Solveen.
However, Klaus Baader at Lehman Brothers in London questioned the usefulness of the ZEW poll. He said it had been a "poor guide" to trends in other business confidence surveys which have all improved in recent months.
A separate ZEW gauge of current economic conditions also fell by 3.4 points in May, but would have fallen even more but for better-than-expected data for German gross domestic product (GDP) announced last Thursday half way through polling.
Based on the responses received before the GDP numbers, the indicator would have posted a sharper decline to minus 81.4. The remaining responses pointed to an improvement to minus 70.1, giving the final number of minus 75.9 after minus 72.5 in April.
German GDP expanded by 0.4 percent in the first quarter compared with the previous quarter in its biggest gain in three years, as surging exports offset a drop in domestic demand.
The euro slipped after the ZEW released its May survey, but bonds and stocks were little changed.
"There was no change in mood among financial analysts - not a good omen for the hoped-for economic recovery. It is anything but assured," ZEW President Wolfgang Franz said in a statement.
While there was still some "cautious optimism" about a recovery, doubts about its strength had increased in May due to rising oil prices, fears that central banks would begin raising interest rates and concern about weak German domestic demand, the institute said.
German Economy Minister Wolfgang Clement said on Tuesday he feared surging oil prices were a "very dangerous" threat to global economic growth.

Copyright Reuters, 2004

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