German investor sentiment slides on credit woes

MANNHEIM, Germany - German investor sentiment fell sharply in September to its weakest level in nine months on worries about the credit squeeze caused by the US subprime crisis plus a strong euro, a closely-watched survey showed.

By (Reuters)

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Published: Tue 18 Sep 2007, 4:55 PM

Last updated: Sat 4 Apr 2015, 11:41 PM

The Mannheim-based ZEW institute said on Tuesday that its economic sentiment indicator, based on a survey of 304 analysts and institutional investors, fell to -18.1, its lowest level since December and below a consensus forecast of a -15.5 reading.

It was the fourth consecutive decline and followed a precipitous drop to -6.9 in August linked to US subprime troubles that have squeezed credit across the globe.

‘The second considerable decline of business expectations since the beginning of the subprime crisis makes clear that the financial experts do not rule out the possibility that the crisis could spill over to the German economy,’ the ZEW said.

A separate gauge of current conditions for Germany fell to 74.4 this month from 80.2 in August, while a measure of expectations for the euro zone slid to -20.3 after -6.1. The survey was conducted between Sept. 3 and Sept. 17.

The global credit crunch has its origins in the US subprime mortgage sector, where home loans made to mainly poor borrowers with weak credit histories were repackaged and sold on as asset-backed securities to institutional investors, including hedge funds, around the world.

The risk of mass defaults in the United States has prompted banks to curb lending to each other as they try to calculate exposures to bad loans. This has forced the world’s major central banks to inject emergency funds into the global financial system to prevent it grinding to a halt. ‘The latest decline in the ZEW was a done deal for three reasons: the ongoing turbulence on financial markets, the record-high levels in the euro/dollar rate and the oil price and the latest lousy US non-farm payroll figures,’ said Andreas Rees, an economist at Unicredit.

The euro hit a high against the dollar last week and US crude oil is also at a record peak.

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