German investor confidence dropped off in May a key indicator released on Tuesday showed, as the eurozone debt crisis reversed a previous surge in expectations.
The Mannheim—based ZEW Centre for European Economic Research’s index, which measures the mood among analysts and institutional investors, fell to 45.8 points this month after having risen to 53 in April.
Analysts had predicted a slightly smaller decline to 45.6 points, according to German Press Agency affiliate dpa—AFX. The April surge had brought to an end six successive monthly falls.
Despite the dip in confidence, experts expected to see economic recovery within the next six months, based in part on strong export and industrial production figures in March.
“The increasingly obvious debt problem of several (eurozone) countries tend to be seen by financial experts as an economic risk,”the ZEWsaid in its report.
Meanwhile the euro stabilised at 1.23 dollars on Tuesday, after slumping to a four—year low at the start of the week.
ZEWPresident Wolfgang Franz also said the drop in expectation most likely resulted from investor uncertainty over eurozone aims to cut national budgets.
The ZEW index’s component measuring the current economic situation in Germany improved in May, rising by 17.6 points to minus 21.6 points.
The economic expectations for the 16—member eurozone fell by 8.4 points this month to 37.6 points.
The figures, based on a survey of 294 analysts, were compiled between May 3 and 17.
Within this period however, the ZEW said there was a drop in investor confidence after May 10, when eurozone members announced a 750—billion—euro (925—billion—dollar) eurozone rescue package, coupled with efforts to curb national budgets.
“Clearly financial market experts expect the consolidation measures to restrain demand,” the ZEWwrote.
This opinion was shared by economists at UniCredit bank, who said the negative effect of budget cuts on growth would likely outweigh the benefits of a weak euro.