German economic confidence dropped for the first time in three months in January as investors turned cautious as to how the market turmoil in China would affect the domestic economy.
The ZEW Indicator of Economic Sentiment dropped to 10.2 in January from 16.1 in December, the Mannheim-based Centre for European Economic Research, or ZEW, showed Tuesday.
This was the lowest score since October. Nonetheless,the reading stayed above the expected score of 8 points.
“The beginning of the new year is characterized by capital market turmoil in China, which has also led to significant share price declines in Germany,” Professor Sascha Steffen, head of the “International Finance and Financial Management” Research Department at ZEW, said.
“As in the previous year, weak economic growth in China and other important emerging markets puts a strain on Germany’s economic outlook,” Steffen added.
Meanwhile, the assessment of the current situation slightly improved in January. The indicator rose 4.7 points to 59.7 points.
The German economy expanded 1.7 percent in 2015, according to Destatis, the most in four years as feeble inflation, record low unemployment and wage growth boosted household spending.
The International Monetary Fund today upgraded its growth projection for Germany, while downgrading the global outlook. According to the latest update, growth in the largest euro area will improve to 1.7 percent this year from an estimated 1.5 percent in 2015.
Jennifer McKeown, a senior European economist at Capital Economics, said German growth grinding to a halt is unlikely, but a slowdown in growth to 1 percent or so this year is possible.
The economic sentiment indicator for the euro area decreased by 11.2 points to 22.7 points in January. In contrast, the indicator for the current situation climbed to a value of minus 7.5 points, gaining 2.1 points in January.
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