BERLIN - Agence France-Presse
German investors do not expect a recession in Europe's biggest economy, a key indicator suggested Tuesday, as cheaper oil and a weakening euro take some of the pressure off firms and consumers.
The ZEW research institute said its index of economic sentiment stood at minus 55.5 points, up 8.4 points from July when the survey hit its lowest level since its creation in December 1991.
"The improvement ... signals that fear about an economic downturn among financial market experts is contained. The recent fall in the price of oil and the weakening of the euro against the dollar must have dampened concerns about the economy," the ZEW said.
"Market experts have not been particularly taken aback by the negative growth rate of the second quarter. They expect weaker but all in all solid economic conditions and do not fear a recession."
The ZEW forecast, based on a survey of 300 analysts and institutional investors, was better than expected with economists polled by Dow Jones Newswires looking for a reading of minus 62 points.
Economists though were cautious.
"(The) rise did not offset last month's fall and the still deeply negative level means that many more investors expect the economy to deteriorate in the next six months than think that it will improve," Jennifer McKeown at Capital Economics said.
Data out last week showed that the German economy, which accounts for a third of total eurozone output, went into reverse in the second quarter for the first time for nearly four years, contracting by half a percent.
The data sent shockwaves through the markets on fears that Europe's powerhouse was headed for recession a year after the subprime crisis began, dragging the entire 15-nation single currency area with it.
With Germany's eurozone partners such as France, Italy, Spain and Ireland also in the doldrums or worse, the bloc's gross domestic product (GDP) fell 0.2 percent in the second quarter, the first contraction since monetary union.
If an economy shrinks for two consecutive quarters it is officially in recession.
Two of the main culprits were rampant energy and food prices putting a squeeze on companies and consumers alike, pushing up prices for manufacturers and blowing a hole in household budgets.
And adding to the squeeze on firms has been the euro's seemingly inexorable rise against the dollar over recent months.
A stronger euro means that exporters get fewer euros for every dollar they are paid for their products, forcing them to raise their prices to levels where they are less competitive than those of their rivals.
But in the past six weeks oil prices have fallen sharply, reaching close to 111 dollars per barrel compared with a high of above 147 dollars on July 11, and the euro last week hit a six-month low against the greenback.
This also cuts some slack for the European Central Bank.
The ECB has been unable to cut interest rates and therefore spur economic activity because of its strict mandate to keep a lid on inflation -- which in July hit a record 4.0 percent in July in the eurozone.