UPDATE 2-German investor morale drops as slowdown looms

* Drop in forward-looking ZEW is bigger than expected

* Current conditions reading jumps by record amount

* Euro briefly pares gains after release of data

(Adds fresh economist comment, background)

By Krista Hughes and Christiaan Hetzner

MANNHEIM, Germany, Aug 17 (BestGrowthStock) – German investor morale
fell in August to its lowest level since April 2009, pointing to
a slowdown in Europe’s largest economy but no risk of it or the
broader euro zone falling back into recession.

The Mannheim-based ZEW think tank said on Tuesday its
monthly poll of economic sentiment fell to 14.0 from 21.2 in
July, declining for the fourth month in a row on concerns that a
global slowdown will hit Germany’s export-orientated growth
spurt.

The reading, well below the consensus forecast for a slight
drop to 21.0 (ECONDE: ), followed news on Friday that the German
economy grew by 2.2 percent in the second quarter — its fastest
quarterly expansion since reunification. [ID:nLDE67C0AI]

That surge pushed growth in the euro zone as whole up to 1
percent, but prospects of further doses of fiscal austerity
across the continent and concerns about the growth outlook in
the United States and Asia have fuelled expectations that the
bounce will be short-lived.

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For a graphic showing German GDP and ZEW click on:

http://r.reuters.com/xux45n

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“After a sharp rebound we’re now entering a period of slower
growth — that’s both for Germany and the euro zone,” said ING
Financial Markets economist Carsten Brzeski.

“I would even not be surprised if we see zero growth in
Germany in the third quarter after such an impressive (second)
quarter,” he added. “Still, the underlying fundamentals remain
in place — order books are filled in Germany.”

The ZEW’s euro zone sentiment index rose. [ID:nLDE67G0K0]

The euro (EUR=: ) briefly pared gains against the dollar after
the figures. However, economists said other data were more
reliable than the ZEW, with Brzeski saying the Ifo institute’s
business confidence survey was his favoured indicator.

The ZEW index was based on a survey of 284 analysts and
investors and conducted between July 26 and Aug. 16, ZEW said.
Ifo typically surveys 7,000 businesses.

Reflecting the economy’s strength after the record second
quarter, a separate ZEW gauge of current conditions rose to 44.3
from 14.6 in July, surpassing all forecasts. The ZEW said the
increase was the strongest in the history of the indicator.

But the drop in expectations pointed to slower growth ahead.
“The recovery won’t continue at this pace,” said BHF Bank
economist Peter Meister. “However, we’re not pessimistic about
the German outlook. We expect growth of more than 3 percent this
year and decent growth next year too.”

Capital Economics’ Jennifer McKeown was more downbeat: “As
global demand growth slows further and consumers remain
reluctant to spend, the recovery is likely to be fairly
short-lived.”

ENJOYING THE MOMENT

Germany’s Federal Statistics Office said there was a
“dynamic trend” in foreign trade in the second quarter which,
together with investment, made the biggest growth contribution.

This trend was supported by a global inventory rebound and a
weaker euro — down over 10 percent against the dollar since the
start of the year — which made German products cheaper outside
the euro zone.

Leading German companies are enjoying the moment.

ThyssenKrupp (TKAG.DE: ), Germany’s biggest steelmaker,
shrugged off high input prices and the threat of Chinese
competition, raising its profit target on Friday as brisk growth
in its home market helped results smash estimates.

“When you look at automobile production in Germany,
especially by exports, that is definitely something which helped
the business,” said ThyssenKrupp Chief Financial Officer Alan
Hippe.

German automaker BMW (BMWG.DE: ) posted its best ever
quarterly pretax profit this month, lifted by surging sales of
luxury cars in China and a weaker euro. Peer Audi (VOWG_p.DE: )
(NSUG.DE: ) is aiming to post record vehicle sales this year.

“We have no expectations for a decline in activity but
though growth expectations are moderating, overall sentiment is
still positive,” said ZEW economist Peter Westerheide said.

Westerheide added that even if the German economy stagnated
for the remainder of this year, it would still post growth of
about 3 percent compared to 2009.

Brzeski said austerity measures would have limited impact on
growth Germany in the coming two years but would hurt countries
on the periphery of the euro zone.

In a sign of weakness on the periphery, Portugal said its
jobless rate in the second quarter was 10.6 percent, up from 9.1
percent a year ago. In Germany, unemployment fell in July to 7.6
percent — its lowest level since November 2008. [ID:nLSB000021]

“It will be up to the ECB, in my view, to tolerate stronger
growth in Germany and maybe even stronger wage increases in
Germany than the rest,” Brzeski added.
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For a blog on the German economy’s export outlook, click on:

http://blogs.reuters.com/macroscope/
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(Writing by Paul Carrel; Editing by John Stonestreet)

UPDATE 2-German investor morale drops as slowdown looms