German economic sentiment plunges on eurozone debt worries

TORONTO (ICIS news)--Germany’s economic sentiment fell sharply in June amid a slowdown in the recovery, uncertainty over the eurozone debt crisis, as well as EU public sector budget cuts that could crimp demand, the country’s ZEW centre for European economic research said on Tuesday.

The centre’s widely watched monthly economic sentiment indicator fell by 17.1 points in June to 28.7, the sharpest decline since October 2008 amid the US banking crisis.

The indicator is based on a survey of 279 analysts who were asked about their expectations for the coming six months. The latest survey was conducted from 31 May to 14 June.

"The current recovery is still fragile. Fiscal policy is therefore well advised to define necessary consolidation measures now, but to implement them not until 2011," said ZEW president Wolfgang Franz, referring to Chancellor Angela Merkel’s package of €80bn ($97.6bn) in budget cuts.

In a related report on Tuesday, Berlin-based economic research institute DIW said Merkel's measures were too focused on cutting benefits and support for low-income earners.

The cuts came against an increasing gap between high and low-income earners that could threaten social stability in Europe’s largest economy, the institute said.

The country’s Bundesbank last week forecast that Germany’s GDP would grow by 1.9% in 2010, after a 4.9% decline in 2009 from 2008.

Germany’s chemical production is projected to increase by 8.5% this year, after a 10% decline in 2009 from 2008.

($1 = €0.82)