German analyst and investor sentiment unexpectedly fell for the first time in three months in October to hit its lowest level since July, suggesting Europe's largest economy will recover only gradually. The Mannheim-based ZEW economic think tank said on Tuesday its monthly poll of economic sentiment fell to 56.0 from 57.7 in September, pushing the euro lower against the dollar and the pound, and sending Bund futures to a session high.
A reading of 58.3 had been forecast in a Reuters poll. Hopes have been rising about the outlook for the German economy in recent months, fuelled by a rise in industrial orders and a pick-up in foreign demand. However, much of this has been attributed to government stimulus measures and senior policymakers have said the recovery is not yet self-supporting.
The ZEW said a fall in exports in August - the last month for which data is available - had probably dampened sentiment, noting that there was ongoing uncertainty about how private consumption would develop in coming months. "The assessment of the financial market experts reflects the prevalent opinion. The economy will improve only gradually," ZEW President Wolfgang Franz said in a statement.
A separate ZEW gauge of current conditions rose to -72.2 from -74.0, still short of a consensus forecast for -69.0. Leading authorities have begun to revise up their economic forecasts for Germany, with sources in the government saying Chancellor Angela Merkel's administration is now expecting a contraction of some 4.5 to 5.0 percent this year.
The government had previously forecast the economy would shrink by some six percent this year. Germany exited recession in the second quarter, when the economy grew by 0.3 percent, and the Bundesbank has forecast the third quarter could see expansion of around 0.75 percent. The government is slightly less optimistic, the sources said.