German Investor Confidence Sinks as ECB Debates Stimulus Action

(Bloomberg) -- Go inside the global economy with Stephanie Flanders in her new podcast, Stephanomics. Subscribe via Pocket Cast or iTunes.

Investor confidence in Germany’s economic outlook worsened dramatically in June after the Bundesbank predicted the economy will shrink this quarter.

An index measuring prospects for the next six months fell to -21.1 in June, a far worse reading than economists expected. The decline indicates increased pessimism after solid first-quarter growth, and comes as the European Central Bank debates if it needs to ease policy further.

The German economy, Europe’s largest, has turned into a weak spot in the region with projected growth of just 0.6% this year. Manufacturing is shrinking, business sentiment plunged to the weakest in more than four years and persistent trade tensions are weighing heavily on momentum.

There is “increased uncertainty regarding the future development of the global economy,” said ZEW President Achim Wambach. “The intensification of the conflict between the USA and China, the increased risk of a military conflict in the Middle East and the higher probability of a no-deal Brexit are all casting a shade on the global economic outlook.”

Activity in the three months through June is likely to decline, according to the country’s central bank, after first-quarter output was bolstered by stockpiling ahead of Britain’s planned departure from the European Union, strong construction and a rebound in the car industry from weakness at the end of 2018. The Bundesbank expressed confidence that domestic demand continues to be robust for now.

--With assistance from Kristian Siedenburg, Harumi Ichikura and Catarina Saraiva.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Catherine Bosley

©2019 Bloomberg L.P.