German ZEW expectations index drops to minus 27.4 in Oct, lowest in 13 years

The ZEW research institute said its economic expectations index for Germany slipped 5.2 points to minus 27.4 points in October, the lowest level in more than 13 years and much worse than expected by experts. Economists polled by AFX News had forecast the index to improve to minus 20.0 points. The ZEW research institute said its economic expectations index for Germany slipped 5.2 points to minus 27.4 points in October, the lowest level in more than 13 years, on worries about next year's VAT hike and a potential economic downturn in the US. The October index -- the lowest since March 1993 -- was also worse than anticipated by experts. Economists polled by AFX News had forecast an improvement to minus 20.0 points. ZEW said business expectations were overshadowed by the potential downturn of the US economy, probable further interest rate increases by the European Central Bank and, above all, consumers' declining purchasing power as a result of the VAT increase and additional tax burdens in 2007. While experts surveyed by the institute were more pessimistic about the future of the German economy, the assessment of the country's current economic climate again improved. ZEW's gauge of current conditions for Germany rose to 42.9 points in October from 38.9 in the previous month. "The good news is that expectations are about to stabilise. The bad news is that they will level out at a comparatively low level which was also caused by the unsuccessful reform of the German health system," ZEW president Wolfgang Franz said. ZEW also said its index measuring economic expectations for the euro zone fell 2.3 points in October and now stands at minus 12.5. The institute's gauge of current economic conditions for the euro zone increased a slight 2.6 points to 43.1.