German investor confidence plunged in October, as the VW emissions scandal and slow growth in emerging markets took their toll.
Thank tank ZEW put its monthly measure of economic sentiment at 1.9 – a fall of 10.2 points from 12.1 in September, and the lowest level it has reached since this time last year.
The decline was much sharper than analysts expected, with the consensus being a drop of 6.1 points.
Last month's revelation that Volkswagen fitted 11m cars with engines designed to cheat emissions tests was found to be one of the biggest concerns weighing on investors' minds. Billions have been wiped off the German car manufacturer's market capitalisation over the last few weeks, and it now faces an investigation by German prosecutors.
ZEW president Clemens Fuest said:
The exhaust gas scandal of Volkswagen and the weak growth of emerging markets has dampened economic outlook for Germany.
However, the performance of the domestic economy is still good and the euro area economy continues to recover. This makes it rather unlikely that the German economy will slide into recession.
The current conditions index also reflected a decline in confidence among investors, falling from 67.5 to 55.2 in October. Jennifer McKeown, senior European economist at Capital Economics, put this down to the “softness of the latest industrial production and trade data”, and warned that the “German economic cycle may have already passed its peak”.
In all, today’s survey supports our view that German growth is likely to slow in the coming months and we expect a gain of around 1.5 per cent this year to be followed by a slowdown to 1.2 per cent next year.