German Investor Confidence Extends Slide as Political Risks Gain

(Bloomberg) -- German investor confidence tumbled to its lowest level since 2012 as U.S. trade tariffs and Italy’s political turmoil added to concerns that the economy is weakening.

The ZEW Center for European Economic Research in Mannheim said on Tuesday that its index of investor expectations fell to minus 16.1 in June from minus 8.2 in May, marking the fourth monthly decline this year. Economists in a Bloomberg survey predicted a drop to minus 14. The negative reading means that more of those investors surveyed saw a worsening of the outlook than forecast an improvement.

The downbeat assessment comes after Italy, Germany’s fifth largest trading partner, triggered doubts over its commitment to euro-area membership when its new populist government promised to implement spending plans that would break European Union rules. Italian bonds and stocks recovered on Monday after Finance Minister Giovanni Tria made assurances that Italy had no plans to leave the single currency.

The turmoil added to mounting concerns over global trade after the U.S. imposed import tariffs on European steel and aluminum. While economists have downplayed how damaging the measures will be for the region’s expansion, Germany’s export-driven economy already appears to be coming off its peak, a trend which could worsen if further risks materialize.

“The recent escalation in the trade dispute with the U.S. as well as fears over the new Italian government pursuing a policy which potentially destabilizes the financial markets have left their mark on the economic outlook for Germany,” ZEW President Achim Wambach said in a statement. “On top of this, German industry has been reporting worse than expected figures for exports, production and incoming orders.”

An array of downbeat indicators have caught economists by surprise recently. Still, the Bundesbank has expressed confidence that growth will recover in the second quarter as temporary effects wear off. Germany’s DAX stock index has pared some of its losses in June after sliding more than 4 percent from a peak in May.

ZEW’s gauge of current conditions slipped to 80.6 from 87.4. A measure of expectations for the euro area dropped to -12.6 from 2.4.

--With assistance from Kristian Siedenburg and Andre Tartar.

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

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