German economic sentiment dips more than expected - ZEW

German economic sentiment deteriorated more than expected in July, according to the latest survey from the ZEW Center for European Economic Research in Mannheim.

The index of economic sentiment fell by 1.1 points from last month to 17.5, missing expectations for a smaller decline to 18.0.

Meanwhile, the current situation index fell to 86.4 from 88.0, missing expectations for it to remain unchanged.

ZEW President Professor Achim Wambach said: "Our overall assessment of the economic development in Germany remains unchanged compared to the previous month. The outlook for the German economic growth in the coming six months continues to be positive. This is now also reflected in the survey results for the eurozone."

Jennifer McKeown, chief European economist at Capital Economics, said: "July’s dip in German investor sentiment presumably reflects the recent tightening of financial market conditions, but we do not think that it is a sign of an economic slowdown to come."

She pointed out that the index has been much less reliable than business surveys such as the Ifo, which still point to a sharp acceleration in growth.

"The ZEW has been unduly influenced by financial market developments in the past and we doubt that the latest rise in Bund yields or the euro exchange rate will have a seriously negative impact on German growth. What’s more, the fact that the ZEW index remains in positive territory means that the majority of investors still see economic conditions improving in the next six months. It is hard to know exactly what that means, but with growth already at a healthy pace, the message is a broadly encouraging one. In all, then, there is nothing here to change our view that German GDP will rise by close to 2.5% this year."