GERMAN INVESTOR confidence dropped more than forecast to a 16-month low in August, suggesting economic growth will slow from the record-breaking pace set in the second quarter.

The Mannheim-based Zew Centre for European Economic Research said yesterday that its index of investor and analyst expectations – which aims to predict developments six months ahead – fell to 14 from 21.2 in July, its fourth straight decline, well below expectations which had been set for a slight dip.

While Germany’s economy grew at the fastest pace in 20 years in the three months through June, the recovery is being driven by exports and there are signs demand will wane.

Factory orders in the United States, the world’s biggest economy, fell more than economists forecast in June, while China’s manufacturing grew at the slowest pace in 17 months in July. European governments are also cutting spending to rein in ballooning budget deficits, threatening to slow growth across the 16-nation euro zone, Germany’s biggest export market.

Zew’s report is “by no means as bad as it seems”, said Ken Wattret, chief euro zone economist at BNP Paribas in London.

“The current assessment rocketed up, meaning the economy is doing really well and everyone expects that it’s going to be cooling toward the end of the year,” he added.

Zew’s gauge of current conditions jumped to 44.3, the highest since January 2008, from 14.6 in July.

Zew said one-third of the responses to its survey came in after the Federal Statistics Office reported last week that gross domestic product (GDP) rose 2.2 per cent in the second quarter from the first, the fastest growth since records for a reunified Germany began in 1991.

“German GDP should post a very healthy expansion of at least 3 per cent this year thanks to a surge in exports,” said Jennifer McKeown, an economist at Capital Economics in London.

“But as global demand growth slows further and consumers remain reluctant to spend, the recovery is likely to be fairly short-lived.” – (Bloomberg)