Russia-West tensions have caused several key German stocks to plummet as large-scale investors lose confidence in the country’s economy. ZEW – a metric used as an economy indicator – recently fell to its lowest point in 20 months.
The rapid decline in economic confidence throughout Europe has been attributed to new sanctions imposed on many Western European countries in the wake of recent tensions between Russia and European countries such as Germany and Poland.
Economists had predicted that Germany, Europe’s largest economy, would suffer a significant downturn due to new Russian sanctions. However, most failed to predict the scale of the downturn in confidence, particularly the ZEW sentiment indicator.
The ZEW indicator of economic sentiment had previously measured 27.1 points in July. It currently reads just 8.6 points. According to Reuters, economists had placed their estimates for August at 18.2 points – a significantly smaller fall in confidence.
Germany is Russia’s biggest trading partner in the European Union, and the recent sanctions placed on several EU countries are likely to hit Germany the hardest. The economic sanctions were caused by disputes over Russia’s involvement in Ukraine.
As a result of the sanctions, combined with structural economic issues throughout the EU, many economists believe that German economic growth will be significantly weaker than expected in 2014.
The official German second-quarter GDP estimates are due to be released later this week. Investors and economists have speculated that the extent of Germany’s new economic issues could be greater than many commentators have anticipated.
Although the Eurozone grew at an overall rate of 0.2% during the first three months of this year, the second quarter growth rate could measure just 0.1 per cent. A poor second quarter could act as a negative signal for the entire German economy.
Much of Germany’s agricultural output is exported to Russia, making the economic sanctions placed on food particularly damaging to the country’s economy.
