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German investor morale dips as inflation fuels recession angst

·2-min read
Sun sets over the skyline and ECB in Frankfurt

BERLIN (Reuters) -German investor sentiment fell slightly in August on concerns the rising cost of living will hit private consumption, and suggesting Europe's largest economy is tipping into recession.

The ZEW economic research institute said on Tuesday its economic sentiment index fell to -55.3 points from -53.8 in July. A Reuters poll had pointed to an August reading of -53.8.

"The still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector," ZEW researcher Michael Schroeder said in a statement.

"In contrast, the expectations for the financial sector are improving due to the supposed further increase in short-term interest rates," he added.

The German economy stagnated in the second quarter, with the war in Ukraine, soaring energy prices, the pandemic and supply disruptions bringing it to the edge of a downturn. Inflation is running at 8.5%.

Finance Minister Christian Lindner said last week the economic situation was deteriorating in Germany and the outlook fragile.

Thomas Gitzel, an economist at VP Bank, expects the economy to shrink in the third quarter.

"The recession has therefore already begun, as no improvement is expected for the final quarter of 2022 either," he added. "Even for the beginning of 2023 there is hardly any reason to hope that the situation will improve again."

Some leading German companies are nonetheless upbeat.

Truckmaker Daimler Truck said last week it would keep prices high even if certain costs begin to fall in order to compensate for lower margins since last year, forecasting demand would remain strong into 2023 despite fears of recession.

"We expect a strong 2023 - demand will outpace the supply side," chief executive Martin Daum said.

A ZEW index on German current conditions fell to -47.6 from -45.8 in the prior month.

(Writing by Paul CarrelEditing by Madeline Chambers and Mark Potter)