German investor sentiment slumps amid raw materials shortage

German investor sentiment deteriorated more than expected in October amid shortages of raw materials, according to a survey released on Tuesday by the ZEW Center for European Economic Research in Mannheim.

The headline ZEW investor expectations index fell to 22.3 from 26.5 in September, missing expectations for a reading of 24.0.

Meanwhile, the current situation index slumped to 21.6 in October from 31.9 in September, coming in well below expectations of 28.5.

ZEW President Professor Achim Wambach said: "The economic outlook for the German economy has dimmed noticeably.

"The further decline of the ZEW Indicator of Economic Sentiment is mainly due to the persisting supply bottlenecks for raw materials and intermediate products. The financial market experts expect profits to go down, especially in export-oriented sectors such as vehicle manufacturing and chemicals/pharmaceuticals."

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said: "Today’s ZEW adds to the evidence that German activity was slowing sharply at the start of Q4. Current conditions are no longer improving. And a fifth decline in the expectations index, to its lowest since March 2020 when the Covid crisis had just started, suggests that most analysts think, as we do, that German GDP growth took a nose dive at the start of Q4.

"The press release notes that analysts are particularly downbeat about profits in export-oriented sectors, particularly autos and chemicals. We expect both the current conditions and expectations indicators to fall further over the coming months as supply constraints continue to keep a lid on activity, particularly in manufacturing."