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Expectations Current Index Conditions

January: +47.2 -56.6

MNI survey median: +49.0 -58.0 MNI survey range: +40.0 to +54.0 -61.1 to -55.0

December: +50.4 -60.6 November: +51.1 -65.6 October: +56.0 -72.2 September: +57.7 -74.0 August: +56.1 -77.2 July: +39.5 -89.3 June: +44.8 -89.7 May: +31.1 -92.8 April: +13.0 -91.6 March: -3.5 -89.4

FRANKFURT (MNI) - Investors' and market analysts' outlook for the German economy deteriorated in January for the fourth month in a row, while their assessment of current conditions continued to improve, the Center for European Economic Research (ZEW) said Tuesday.

ZEW's six-month outlook index fell another 3.2 points to +47.2 at the start of the new year after a 0.7-point decline in December and a 4.9-point drop in November. The index hit the lowest level since July 2009 but remains above its historical average of around +27.

Most analysts had expected a flatter decline; the median forecast of an MNI survey of analysts was for a drop to 49.0.

"The assessment of the financial market experts suggests that we will see an economic recovery in 2010 at best, but not a clear economic upswing. The way out of the recession is burdensome and long," ZEW President Wolfgang Franz said.

According to the experts, Germany's key automobile industry as well as consumption should deteriorate in the second half, ZEW said. "Business expectations for the German machinery sector, in contrast, considerably improved this month," it added.

The ZEW's current situation index rose 4.0 points to -56.6 in January, surpassing expectations and hitting the highest level since November 2008.

The Sentix eurozone investor sentiment index, released earlier this month, also recovered further in January (-3.7 after -5.5), reflecting improvements in both expectations (11.25 after 9.5) and current conditions (-17.5 after -19.5.)

Following a healthy GDP rebound of +0.4% in Q2 and +0.7% in Q3 from the sharpest recession since World War II, the recovery has begun to lose steam, dampening optimism for further improvement.

The Federal Statistics Office last week suggested that activity stagnated in the final quarter of 2009. However, both the German government and the Bundesbank said they still expect to see a modest plus when final results are published on February 12.

Economics Minister Rainer Bruederle said Q4 GDP grew "slightly above zero" compared to the previous quarter.

The Bundesbank also said the economy continued to expand in Q4, but with "clearly weakened dynamics." While trade flows remained sustained in Q4, consumer demand was dampened by the end of the automobile scrapping premium, the central bank said in its Monthly Report on Monday.

Nevertheless, the recovery process "appears intact" given improving export expectations and increasing orders in industrial branches not directly connected with automobile manufacturing, the Bundesbank argued.

After the faster than expected recovery in the second and third quarter, the government will raise its GDP growth forecast for this year in spite of the slowdown seen in the fourth quarter. New forecasts, to be released on January 27, see full-year growth of 1.5%, after a previous forecast of 1.2%, a Finance Ministry spokesman said Monday.

The ZEW's expectations indicator for the eurozone as a whole sank 1.6 points to 46.4 points, while the current conditions index rose to -62.7, reflecting a gain of 5.1 points.

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