Investor sentiment in Germany fell to its lowest level in seven months in June as the uncertainty over Greece and subdued global growth weighed on confidence, a leading survey found on Tuesday.
The widely watched investor confidence index calculated by the ZEW economic institute fell by a steeper-than-expected 10.4 points to 31.5 points in June, its lowest level since November 2014, ZEW said in a statement.
Analysts had been expecting a less marked decline this month to 37.3 points.
"External factors are reducing the scope for further improvement of Germany's good economic situation. These include, in particular, the ongoing uncertainty over Greece's future and the restrained dynamic of the global economy," said ZEW president Clemens Fuest.
Greece and its creditors are locked in a stalemate after loan talks collapsed, bringing Athens just two weeks away from a catastrophic default on its debt.
The talks concerning the release of the 7.2 billion euros ($8.1 billion) in rescue funds remaining in Greece's bailout have dragged on for five months.
For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.
The sub-index measuring financial market players' view of the current economic situation in Germany slipped by 2.8 points to 62.9 points in June, ZEW said.
- Market volatility -
"This month's ZEW reading was clearly affected by the market volatility and the ongoing uncertainty over Greece," said BayernLB economist Stefan Kipar.
Nevertheless, "we're not projecting a loss of economic momentum in Germany, let alone a drop in output," he said.
"The fundamentals -- a weak euro and low oil price -- remain intact and will unfold their positive effects during the course of the year," the expert added.
Capital Economics economist Jennifer McKeown said the fact that the ZEW barometer remains in positive territory "means that most investors still see conditions improving in the next six months, but that majority has declined in each of the past three months."
The latest economic data suggest that growth in Germany will pick up in second quarter, "so the German economy seems to be performing pretty well for now," McKeown said, predicting gross domestic product growth of close to 2.0 percent this year.
"But growth seems set to weaken next year as temporary boosts from the euro and falling energy inflation fade. And there is clearly a risk of a more rapid slowdown if the Greek crisis is not resolved quickly," the analyst warned.
ING DiBa economist Carsten Brzeski said the slight dent in German investors' confidence "should not necessarily be a harbinger for weaker growth.
"On the contrary, the fundamentals of the German economy currently rather point to an acceleration and not a slowdown in the second quarter. Needless to say that this positive scenario would become obsolete if and when the Greek crisis would escalate further," Brzeski said.