Markets cool on Germany after Ukraine tension

INVESTOR confidence in Germany appears to be weakening, with the political crisis in Ukraine helping to send a major index of sentiment to its lowest level since the beginning of 2013.

The Zew index for economic sentiment announced yesterday stood at just 33.1 for May. It has now fallen for five months in a row, and the drop between April and May was the steepest in a year.

Any number above zero is positive, so investors are still expressing confidence on balance.

But sentiment is much weaker now than it was at the start of the year.

“Worries about future growth are most apparent in Germany, probably reflecting its stronger trade and energy supply links to Russia and Ukraine than other western European countries,” said Berenberg’s Robert Wood. This month German Chancellor Angela Merkel discussed the issue of gas supplies with Russian President Vladimir Putin.

Jessica Hinds of Capital Economics said that while the German economy may have expanded by around 0.7 per cent in the first quarter, annual expected growth of two per cent would not be “strong enough to eradicate the risk of deflation in the Eurozone as a whole.”

The Zew survey for the wider Eurozone also registered a decline between April and May.