By Maria Martinez
BERLIN (Reuters) -German investor morale fell more than expected in January, the ZEW economic research institute said on Tuesday, after the German economy contracted for the second consecutive year.
The institute’s economic sentiment index fell to 10.3 points from 15.7 points in December, well below the 15.3 forecast by analysts.
“A lack of private household spending and subdued demand in the construction sector continue to stall the German economy,” ZEW president Achim Wambach said. “If these trends continue in the current year, Germany will fall further behind the other countries of the euro zone.”
Germany has gone from being Europe’s economic powerhouse to underperforming its peers, and is expected to be the only major economy to have contracted last year.
Disagreements over how to revive Europe’s largest economy was the main factor behind the collapse of German Chancellor Olaf Scholz’s fractious three-party coalition last year, and the economy is German voters’ top concern.
The decline of the economic sentiment index is also due to political uncertainty, driven by a potentially difficult coalition-building process in Germany, Wambach added.
Germany will hold elections on Feb. 23. How to revive the country’s anaemic growth is one of the main topics in the election campaign.
Also weighing on investor morale is the unpredictability of policymaking under the new U.S. administration, according to Wambach.
The U.S. is Germany’s main trading partner and the German trade surplus with its transatlantic partner set a record high last year. This trend could reverse if U.S. President Donald Trumps pushes ahead with punitive trade tariffs.
The assessment of the current economic situation in Germany however, changed only slightly, with the indicator rising to minus 90.4 point from minus 93.1.
