German investor sentiment deteriorated to its gloomiest level in almost 15 years in December, depressed by fears about the health of the US economy and turmoil on financial markets.
The Mannheim-based ZEW research institute said on Tuesday its economic sentiment indicator, based on a survey of 284 analysts and institutional investors, fell to -37.2 this month - the lowest since January 1993 - from -32.5 in November.
"The financial market experts see clear risks for economic growth in important industrial countries, particularly in the United States. This impairs the export prospects of the German economy," the institute said in a statement.
The mid-range forecast in a Reuters survey of 41 economists polled last week was for a December reading of -34.0. The think tank said the euro's strength against the dollar - it hit a record high of nearly $1.50 last month - had raised concerns about the outlook for German exports, which have been a key support for the economy in recent years.
Yet with employment at record levels and wages rising faster than they have in years, the government is hoping stronger private consumption could support the economy in 2008. However, the ZEW think tank said the experts polled believe consumer spending will be largely flat over the next six months. A quarterly survey by employment services agency Manpower Inc published on Tuesday showed the jobs outlook in Germany was set to remain positive for the eighth quarter in a row, although firms' appetite for hiring new staff is waning.
In a poll of over 1,000 firms, Manpower said 15 percent planned to take on new staff in the first quarter of 2008, down from 17 percent in the current quarter. Eight percent planned to cut staff, up from five percent in the fourth quarter.
ZEW President Wolfgang Franz said he still believed the economy would expand by around 1.9 percent next year after expected growth of roughly 2.5 percent in 2007.
Over the short term, some leading forecasters are upbeat. The Berlin-based DIW economic think tank forecast on Tuesday that Germany's economy would expand 0.6 percent in the final quarter of this year, after growth of 0.7 percent in the third quarter.
The ZEW survey also showed that a separate gauge of current conditions for Germany fell to 63.5 points this month from 70.0 in November. A measure of expectations for the eurozone declined to -35.7 from -30.0 in November, the ZEW said. Martin Van Vliet, an economist at ING, said the credit crunch had deepened pessimism about the outlook for the German economy, as had the European Central's Bank's message last week that no interest rate cut was imminent.
ZEW chief Franz told reporters that he expected the ECB to raise interest rates - currently at 4.0 percent - next year after turmoil in financial markets receded. Van Vliet said the economic outlook was probably not as bad as the survey suggested. "The ZEW survey is conducted principally amongst financial professionals working at the epicentre of the financial turmoil, who may be somewhat blind to the strength in other sectors of the economy besides financial services."
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