Indicator of Economic Sentiment for Germany Declines to 39.5 Points

Europe ’s economic rebound still has a long way to go, according to data issued Tuesday. The ZEW Center for European Economic Research, based in Mannheim, Germany, said its indicator of economic sentiment for Germany, Europe’s largest economy, declined to 39.5 points this month, falling from 44.8 points in June. That fell well short of expectations among economists that it would rise to 48. A separate measure, which tracks current economic sentiment, rose by 0.4 points to minus 89.3 points. The ZEW president Wolfgang Franz, said in a statement that the data were consistent with forecasts for a 6 percent decline in German gross domestic product this year, with growth rates “likely to move around zero percent until the first months of 2010, the New York Times reports.

The findings of the Zew economic sentiment index will temper hopes of recovery in Europe's largest economy, observers say.

The index, which measures expectations of economic activity over the next six months, fell to 39.5 from 44.8 in June.

A Reuters poll had suggested analysts' sentiment was improving.

But Zew said that respondents had expressed concern over whether lending to firms and households would work out - something that posed "considerable risk for the future development of the German economy".

A separate measure of current conditions rose slightly, to -89.3 from -89.7.

Germany 's economy shrank by 3.8% in the first quarter of 2009 on the back of slumping demand for exports.

Late last month, a separate survey suggested that firms in Germany were more confident than they had been for seven months, BBC News reports.

German analyst and investor sentiment dropped in July for the first time in nine months, weighed down by concerns about tighter credit conditions and suggesting any economic recovery will be slow.

The Mannheim-based ZEW economic think tank said on Tuesday its monthly index of economic sentiment fell for the first time since October 2008, registering 39.5 in July after 44.8 in June.

The fall, which went against expectations for a rise, followed a run of hard data last week pointing to a stabilisation in industry. A senior government official also said last week the economy may have exited a recession in the second quarter.

'The figures are disappointing. They reflect a certain scepticism that has recently returned to the stock and bond markets,' said Ralph Solveen from Commerzbank, Forbes reports.