German economy outlook july 2012

World Economic outlook German economy outlook july 2012 : Expectations for the German economy may have reached bottom, the Center for European Economic Research, also known as ZEW, said Tuesday.

ZEW's closely watched economic expectations index fell to -19.6 in July from June's unrevised -16.9, slightly above the consensus forecast for a drop to -20.0. July's slower decline may signal a turnaround, ZEW's head of research development Michael Schroeder told journalists here today.

The "very small" change in July after June's dramatic drop reflects survey participants" view that the economic outlook should be stable until year-end, Mr. Schroeder said.

While July's decline took the index to a six-month low, the fall is slowing compared with June when the indicator fell at its fastest rate since October 1998.

"The decline of the economic expectations concerning the end of 2012 is flattening out gently" in a possible "early sign of an encouraging development in 2013," ZEW president Wolfgang Franz said in a statement.

July's figure probably reflects "a certain relief in the sovereign debt crisis" following the European Union summit, said Commerzbank analyst Ralph Solveen.

At their summit last month, EU leaders agreed to create a single supervisory body for euro-zone banks, and to empower the bloc's permanent rescue fund to recapitalize banks directly.

Germany's economy, Europe's largest, has so far remained relatively resilient to the debt crisis that has enveloped its euro zone peers. The country posted robust first-quarter growth of 0.5% that helped keep the bloc out of recession. German exports and imports both rose to their highest level on record in May after seasonal adjustments, according to Germany's federal statistics office. Exports were driven by business with non-European states, which rose 3.4% on the year in nominal terms. By contrast, exports to euro-zone countries fell 2.3% on the year in May.

Still, Mr. Franz cautioned that risks remain for Germany.

In particular, Germany's economy faces weak demand from the euro zone for German goods as well as "weakening growth dynamics in other important partner countries," Franz said.

Crucially, ZEW's current conditions index fell to a two-year low of 21.1 in July from June's unrevised 33.2, clearly missing the consensus forecast of a drop to 29.5.

But most survey participants expect Germany's economy to avoid any quarterly contraction this year, Mr. Schroeder said. Participants expect growth of about 0.3% quarter-on-quarter for the second, third and fourth quarters of 2012, he said.

Indeed, "hard" German economic data, such as industrial production and export figures, look "better than the drop in confidence indicators might suggest," said Carsten Brzeski, an economist at ING Bank in Brussels.

While Germany's economy "hasn't yet escaped" the risk of a second-quarter contraction, "a severe deterioration, as in most other euro zone countries, should be avoided," he said.

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