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Bleak investor sentiment

June 19, 2012

Investors in Germany expect the business climate in the country to worsen in the months ahead, according to a fresh study by a domestic economic think tank. Its confidence indicator shows a steep drop for June.

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German investor confidence plummeted in June, marking its steepest fall in nearly 14 years amid ongoing eurozone woes.

The business expectations index by the Center for European Economic Research (ZEW) plunged 27.7 points to minus 16.9 points this month, logging the biggest drop in confidence since October 1998.

"The escalation of the situation in the Spanish banking sector contributed to the sharp drop in the indicator," the president of the Mannheim-based think thank, Wolfgang Frank, said in a statement on Tuesday.

Market imponderables

The ZEW indicator reflected unmistakable risks of a marked economic downturn in Germany's key trading partners and offered a stern warning against an over-optimistic assessment of Germany's economic outlook this year.

ZEW Chief Wolfgang Franz noted, though, that the survey was carried out before elections in Greece.

"There's the precarious situation in the euro area, and the outcome of the Greek vote offers a short breathing space, but nothing more," Franz argued.

"Markets are still facing a good deal of uncertainty," Commerzbank Economist Ralph Solveen commented. "I wouldn't say that we're heading towards a recession in Germany, but we won't see decent growth either."

hg/pfd (AFP, Reuters, dpa)