German investor sentiment plunges to four-year low on Brexit fears

The Mannheim-based ZEW institute said on July 19 its economic sentiment index sank to -6.8 points in July from 19.2 in June. That reading compared with a Reuters consensus of 9.0 and was lower than any of the economists polled had predicted.

“Uncertainty about the vote’s consequences for the German economy is largely responsible for the substantial decline in economic sentiment,” ZEW President Achim Wambach said.

Worries about the outlook for exports and the stability of the banking and financial system following the ‘Leave’ vote in the June 23 referendum in Europe’s main financial center could also take their toll on the German economy, he said.

The ZEW index was based on a survey of 220 analysts and investors conducted from July 4 to 18, giving participants time to make an initial assessment of the impact Brexit could have.

Britain is Germany’s fifth-biggest trading partner for goods and the German chamber of commerce has cut its forecasts for exports there at a time when Germany is having to increasingly rely on domestic demand to offset slowdowns elsewhere.

The ZEW separate gauge of current conditions fell to 49.8 points from 54.5 in June - also below the Reuters consensus forecast for a reading of 51.8.

Analysts suggested the headline ZEW reading might be disproportionate.

Thomas Gitzel, economist at VP Bank, said it was yet to be seen whether the German economy would be hit hard by Brexit this year and said the indicator could rise again next month.

“It’s conceivable that the German economy will get off lightly - while Great Britain is not an unimportant trading partner, it is not the most important,” he said, adding that there had not been huge financial market turbulence.

Florian Hense, economist at Berenberg in London, said sentiment data could “overreact to uncertainty more than hard economic data”, and the euro zone economy should emerge relatively unscathed “as long as the contagion risk is contained”.

The German Economy Ministry has expressed concern about increasing economic risks for Germany in view of Brexit but has declared Europe’s economic powerhouse is still in good shape while the Bundesbank has said for now it only sees a limited near term impact fromBrexit.

A survey by Frankfurt-based Sentix had already shown sentiment and expectations in Germany falling in July.