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German investors in low spirits despite ECB stimulus boost

Despite the European Central Bank announcing new measures aimed at spurring economic growth and preventing deflation in the euro area, the German investor confidence still fell for a sixth month in June. This was quite unexpected since the stimulus was meant to exert upward pressure on the price levels to ensure they were acceptable to investors.

The ECB stimulus plans had some positive effect though. According to the survey carried out by ZEW, the respondents’ expectations were slightly optimistic since this package was announced on June 5. The survey was carried out from June 2 to June 16.

A measure of current situation jumped from 62.1 to 67.7, while an index of expectations for the euro area jumped from 55.2 to 58.4. The DAX Index of stocks went up by 0.7 percent at 9,956.

These notwithstanding, the ZEW Center for European Economic Research index dropped from 33.1 where it was in May to 29.8 currently. This is the index that it uses to gauge analyst and investor confidence and to predict economic improvements six months in advance. It is therefore the index that most investors rely on to make investment decisions.

According to a survey by Bloomberg News, some economists hope that the index could increase to 35, in reference to the median of 35 estimates. The index was at its seven-year peak in December 2012. Since then it has been falling every month and is now at its lowest.

And according to Bendesbank, the German economic growth was boosted at the beginning of the year by mild winter, but it has slowed in this quarter. Europe’s economy as a whole is still sound, the problem is with the 18 nations that form the euro area that are struggling with low inflation and suppressed growth. This is what prompted the European Central Bank to unveil measures including targeted long-term loans to banks and a negative deposit rate.

The sentiments of Bendesbank were supported by ZEW President Clemens Fuest who said the German economy is doing well but further increases are a big challenge. “We had a strong first quarter in 2014 due to favorable weather conditions but signs are that the second quarter will be weaker” he said.

This has seen business confidence declining and unemployment increasing in May. The increase in unemployment happened for the first time in six months. Deutsche Lufthansa AG airline also reduced its earning forecasts as its pilots protested against cost cuts and a capacity splurge at Gulf competitors hurt prices.

The Bundesbank has predicted that the economy will grow slightly in the second quarter after it expanded by 0.8 percent in the first quarter. It predicts a growth of 1.9 percent this year, 2 percent in 2015 and 1.8 percent in 2016. The figures show some fluctuations, but the general trend is that there will be growth in the economy, and hopefully the level of employment will increase.

According to David Milleker, a chief economist at Union Investment GmbH in Frankfurt, the German economy is basically doing well. He added that perhaps after the good performance in the first quarter, the economy is now cooling down.

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