German investor sentiment slips, highlighting long road to recovery

While second quarter growth will be welcome, it will do little to counterbalance the first-quarter losses: the government expects the economy to shrink by 6.3% this year, its worst recession since World War Two. German Finance Minister Olaf Scholz last week said it could take until the start of 2022 for Europe's economic powerhouse to reach pre-crisis levels.

Investor sentiment in Germany worsened somewhat in July, the ZEW economic research institute said, showing Europe's largest economy has a long path to recovery from the coronavirus crisis despite a slew of more positive data.

An indicator tracking investors' economic sentiment slipped to 59.3 points, down from 63.4 points the previous month, coming in well short of a forecast for 60.0 in a Reuters poll of economists. "The outlook for the German economy largely remains unchanged," ZEW's President Achim Wambach said in a statement. "After a very poor second quarter, the experts expect to see a gradual increase in gross domestic product in the second half of the year and in early 2021."

After economic output and sentiment plunged following the advent of the pandemic and the lockdown to curb it, recent data has shown a slow improvement, helped by massive government spending on supporting a battered economy. Industrial output rebounded last week, led by a surge in the production of capital goods, even though it remained well below pre-lockdown levels.

ZEW's gauge of current conditions reflected this trend, rising slightly to -80.9 points, from -83.1 the previous month - but it was well behind the consensus forecast of -65.0 points. While second quarter growth will be welcome, it will do little to counterbalance the first-quarter losses: the government expects the economy to shrink by 6.3% this year, its worst recession since World War Two.

German Finance Minister Olaf Scholz last week said it could take until the start of 2022 for Europe's economic powerhouse to reach pre-crisis levels.