German investor morale rises less than expected in October, ZEW survey shows

By Maria Martinez

(Reuters) -German investor morale improved less than expected in October, weighed down by sluggish current economic performance and further delays in long-awaited recovery in Europe's biggest economy, a monthly survey showed on Tuesday. 

The ZEW economic institute said its economic sentiment index based on a survey of financial analysts rose to 39.3 points from 37.3 points in September, below 41.0 points forecast by analysts in a Reuters poll.

“Experts are still hoping for an upturn in the medium term," ZEW president Achim Wambach said in a statement.

RISE IN EXPECTATIONS DRIVEN BY THE EXPORT SECTOR

The improvement in the economic sentiment was driven by expectations. They improved markedly this month for the export-oriented sectors, such as metal production, pharmaceuticals, mechanical engineering and electrical equipment manufacturing, ZEW said. The automotive sector was an outlier with a slight drop in its sentiment indicator.

The assessment of the current economic situation remained negative, however, with its measure falling to minus 80.0 points from minus 76.4 in the previous month. 

"The result once again shows current gloom paired with hopes for the future," said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank.

U.S. President Donald Trump's tactic of using tariffs to rewrite the global trade order has unsettled markets and caused uncertainty that hurt Germany's export-dependent economy.

Thomas Gitzel, chief economist at VP Bank, said the survey showed there were hopes that conditions will start improving for the nation's exporters. He warned, however, that the latest tariff disputes between China and the U.S. could darken the picture again as early as next month.

Following two years of contraction, the German government expects the economy to grow by only 0.2% this year, largely because of continued trade tensions.

The economy ministry expects 1.3% growth next year and 1.4% growth in 2027, thanks to the new government's spending plan.

However, analysts are concerned that Berlin is using its greater financial leeway created by its fiscal reforms to prop up day-to-day spending rather than focus on upgrading its infrastructure to make the country fitter for the future.

"It hurts that the federal government is using the special fund for consumption purposes instead of investing more," Krueger said. "This reduces the chance of achieving a higher growth path with additional expenditure."

The ZEW index is based on an October 6-13 survey of 177 financial analysts at banks, insurers and industrial companies, asked to assess the country's current economic conditions and its prospects on a scale from minus 100 to plus 100 points.

(Additional reporting by Reinhard Becker, Writing by Friederike Heine; Editing by Ludwig Burger, Madeline Chambers and Tomasz Janowski)