Investor confidence in Germany has plunged to its lowest level in almost a year, reflecting growing concerns over a worsening economic situation in the country's vital manufacturing sector.
An expectations gauge from the ZEW institute dramatically dropped to 3.6 in September from 19.2 in August, far below the anticipated modest decline to 17, as reported on Tuesday. The index of current conditions also deteriorated, falling to -84.5.
"The hope for a swift improvement in the economic situation is visibly fading," said ZEW President Achim Wambach. He noted that while pessimism is rising across the eurozone, the outlook for Germany is particularly bleak.
The outlook for Europe's largest economy has darkened considerably following a surprising contraction in output during the second quarter, driven by a sluggish industrial performance. Despite rising incomes, consumer spending remains subdued, further weighing on the economy.
Recent weeks have brought a series of bad economic news for Germany. Volkswagen AG announced plans to end a long-standing labor pact and is considering closing domestic factories due to weakening demand. Competitor BMW was forced to lower its earnings guidance following a recall of 1.5 million cars with potentially faulty brakes. Meanwhile, Intel Corp postponed the opening of a planned chip factory by about two years.
After a full-year contraction in 2023, economists are now lowering their forecasts for 2024, with some predicting stagnation or even a slight downturn. Alongside weak external demand, structural challenges such as adverse demographics, high energy costs, and intensifying competition from China are further dampening prospects.
While the European Central Bank (ECB) recently cut borrowing costs for the second time, and the Federal Reserve is expected to follow suit, most market participants have already factored in these moves, suggesting limited optimism for a quick recovery.
"The economic challenges facing Germany are significant, and confidence among investors remains low," Wambach added, indicating a cautious outlook for the months ahead.
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