(June 19, 2012) — Germany, the strong man of Europe, has finally been pulled into the mire of the Eurozone crisis, research showed today, as economic sentiment about the country felt the largest slump in 13 years.
The ZEW Indicator, which measures business sentiment in Germany, fell by 27.7 points to a level of minus 16.9 points in June, the Centre of Economic Research (ZEW) said today.
This represented the largest fall since October 1998. The main contributors to this decline were the worsening of the situation in the Spanish banking sector and the insecurity about the outcome of Greece’s general election. These issues had been taking place for most of the survey period, the organisation said.
“The financial market experts’ expectations are a strong warning against a too optimistic assessment of Germany’s economic perspectives in the remainder of this year,” said ZEW President Professor Wolfgang Franz. “The risks of a pronounced decline in economic activity in countries with close trade ties to Germany are very clear. In addition, there is a situation in the Eurozone which continues to be precarious.”
Since rising over the past few weeks, Spanish borrowing costs have remained stubbornly high – above 7% for 10 year debt, including bonds sold at auction today – and questions have continued to be posed over the short-term stability of Italy and Ireland.
Elsewhere however, some borrowing costs in safe havens outside the Eurozone, such as Switzerland and Denmark, have fallen into negative territory.
“The outcome of the Greek vote [in last weekend’s general election] is a short breathing space – just that, nothing more and nothing less,” said the ZEW President.
The ZEW data showed economic expectations for the United States had also fallen significantly – 18.6 points – but remains in positive territory overall at 7.0 points. This was slightly above Japan – 1.9 points – which also saw economic expectations fall by 17.2 points.
The current view of the Eurozone’s economic state stands at minus 73.2 points – a slump of 13 points over the month.