(Bloomberg) -- Investor confidence in Germany’s economy plunged to its lowest level in almost a year after further signs that the country’s manufacturing giants face an increasingly uncertain future.
The surprisingly quick deterioration in sentiment is the latest evidence of a souring outlook, arriving just after Intel Corp. said it plans to postpone a planned factory by about two years.
The ZEW institute’s expectations gauge fell to 3.6 in September from 19.2 in August, a release Tuesday showed. Economists had expected a small drop to 17 and none foresaw such a slump. An index of current conditions also fell, to -84.5.
“The hope for a swift improvement in the economic situation is visibly fading,” ZEW President Achim Wambach said in a statement. “Although the falling economic expectations for the eurozone point to an overall rise in pessimism, the drop in expectations for Germany is significantly greater.”
The prospects for Europe’s biggest economy have darkened after output surprisingly shrank in the second quarter amid a weak industrial performance. Consumers also remain hesitant to open their wallets — even as incomes have been rising faster than prices.
What Bloomberg Economics Says...
“The bigger-than-expected drop in the ZEW index adds to the recent stream of negative news for the German economy and makes another GDP decline in the third quarter more likely. With only a very modest expansion in the final three months of the year, economic activity might stagnate in 2024.”
—Martin Ademmer, economist
“The current assessment of the situation is now almost as bad as it was at the beginning of the Covid pandemic in spring 2020,” said Robin Winkler, an economist at Deutsche Bank. “Economic expectations are somewhat more robust, but the optimism from the spring has disappeared. A gloomy autumn is on the horizon.”
The last few weeks have seen Germany inundated with bad economic news.
Volkswagen AG, its top automaker, announced it would end a decades-old labor pact and consider closing domestic factories, citing waning demand. Rival BMW had to cut earnings guidance due to a recall of 1.5 million cars equipped with potentially faulty brakes.
After a full-year contraction in 2023, economists have started lowering their predictions for this year as well. Some see stagnation or even another slight downturn. While subdued demand abroad is a key weakness, structural factors like adverse demographics, high energy costs and growing competition from China are also drags.
Monetary policy may provide some help after the European Central Bank cut borrowing costs for a second time last week. The Federal Reserve is expected to follow suit when officials meet Wednesday.
Even so, “most respondents appear to have already factored the ECB’s interest-rate decision into their expectations,” Wambach said.
--With assistance from Joel Rinneby and Kristian Siedenburg.
(Updates with Deutsche Bank comment in sixth paragraph.)
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