Key German indicator plunges to its lowest reading since January 2003

FRANKFURT (AFP) - A key indicator of near-term German economic performance plunged this month to its lowest reading since January 2003 against the backdrop of a rising euro and amid increasing signs of a cooling off in economic activity.
An index published Tuesday by the ZEW institute measuring prospects for the eurozone's largest economy in the next six months fell 17.4 points to 13.9, its fourth monthly decline and the sharpest fall since November 2002.
"The growing pessimism reflects a slowdown in the world economy and the recent surge in the value of the euro," the institute said.
Analysts had forecast a drop of just 1.3 points to 30, according to the Swiss bank UBS.
The ZEW index is now below its long-term average of 34.7 points, which means that contributing economists believe German economic growth will slow over the next six months.
"The growing pessimism is explained by a slowing global economy and the euro's recent spike which should affect German foreign trade," the institute said.
Among the signs of economic dampening in Germany was a contraction in industrial production in September and in industrial orders hurt by the stronger euro, according to data released last week.
Retail sales have also stagnated, a poor sign for third-quarter performance.
"The ZEW index remains on a downward trend that started in January 2004," said analyst Emmanuel Ferry of brokers Exane, who predicted that it would continue to weaken in the coming three to six months.
Publication on Thursday of third quarter growth figures are expected to confirm the slowdown.
The German central bank, the Bundesbank, warned of such a scenario in mid-October after the economy expanded just 0.5 percent in the second quarter compared with the first and 0.4 percent in the first three months of the year.
Analysts are now predicting growth of 0.3 percent in the third quarter, according to Swiss bank UBS.
The news is hardly more encouraing elsewhere in the 12-nation eurozone. The French statistics institute INSEE reported Tuesday that industrial activity in the zone had ceased to improve in the face of softening global demand.
Sentiment in the eurozone is also weighed down by fears in some quarters that a rising euro against the dollar -- a movement described as "brutal" by European Central Bank head Jean-Claude Trichet -- will dampen eurozone exports and weaken overall momentum still further.

11/09/2004 - 20:04 GMT - AFP