by Aurelia End
FRANKFURT, Aug 17 (AFP) - Investor confidence in Germany has declined more sharply than anticipated, a major economic think tank said Tuesday, as high oil prices put a damper on hopes of a continuation of the nascent recovery.
According to its latest data, the ZEW institute said that its monthly economic expectations index for August fell by 3.1 points over the month to August to 45.3 points.
The consensus forecast of economists polled by AFP's financial news service AFX was for a minor drop in the index to 48.0 from 48.4 in July.
The ZEW index, the second most important confidence barometer after the widely watched business climate index published by fellow institute Ifo, measures the outlook of analysts and institutional investors for the economy over the coming six months.
The fall erases the gains made on the ZEW index over the previous two months, and takes it to its lowest point since July 2003.
ZEW president Wolfgang Franz said that August was dominated by negative news about oil prices and the world economic outlook, but that despite the fall experts were still expecting a mild recovery in the 12-state eurozone's biggest economy.
According to official data last week, German growth gathered pace in the second quarter, bolstering rising optimism about prospects for the German economy, thanks once again to exports.
While the rise was modest -- 0.5 percent percent growth in gross domestic product (GDP) in the second quarter over the first in 2004 -- it has not been so strong in Germany since the beginning of 2001.
"The analysts' assessments reflect fears that the economic recovery in this country is losing dynamic because of growing uncertainties over the development of the world economy and the oil price," Franz said.
He said that the cost of crude would also weigh on the purchasing power of consumers and therefore on domestic demand, and experts concurred.
"The survey gives further indication that the pace of growth in Germany will slow over coming months, with the rise in oil prices likely to damage consumer spending," said Mitul Kotecha at Calyon.
In addition to worries over the high price of oil, economists said the index is reflecting concerns about a slowing world economic recovery.
"Given Germany's bias towards exports as the key contributor to growth, signs of softening in other major economies will damage export prospects, further weighing on confidence," Kotecha said.
Lorenzo Codogno at the Bank of America agreed that the drop in the index "casts a shadow on second-half economic growth".
"The poor result should not be totally surprising."
Codogno said the ZEW drop is a confirmation that the German, and to a lesser extent eurozone, recovery "remains fragile and not yet self-sustaining".
"Should oil prices remain high this would probably result in some moderation in economic activity in coming quarters compared to the pace recorded in the first half," he said.
The Ifo institute is due to release its data on August 26.