RTTNews - German investor confidence unexpectedly fell in July for the first time since October 2008 on credit concerns, results of a closely watched survey revealed Tuesday.

Economic expectations for Germany slightly dropped in July for the first time after an increasingly optimistic outlook in the previous months, the Mannheim-based ZEW Center for European Economic Research said.

The economic sentiment indicator fell to 39.5 points in July from 44.8 points in June, while economists expected the reading to rise to 47.8 points. However, the reading is above its historical average of 26.3 points.

This reflects the growing scepticism about the economy on markets in past weeks, Commerzbank analyst Simon Junker said.

A considerable risk for the future development of the German economy is whether lending to firms and households works out, ZEW said in a statement. In contrast, the surprisingly positive figures for incoming orders and industrial production have positively affected business expectations.

The assessment of the current economic situation in Germany remained almost unchanged in July. The corresponding indicator increased marginally by 0.4 points to minus 89.3 points. Meanwhile, economists were expecting an improvement to minus 87.8 from June's minus 89.7.

The stabilization of the assessment of the current situation and the economic expectations for Germany confirm hitherto existing forecasts that economic performance will decrease by six percent in this year, ZEW President Wolfgang Franz said. The growth rates are likely to move around zero percent until the first months of 2010, Franz added.

Last week, the International Monetary Fund said the German economy is likely to contract 6.2% this year and then 0.6% next year, revised from declines of 5.6% and 1% predicted in April. At the same time, the euro area is forecast to shrink 4.8% in 2009 and 0.3% in 2010.

Junker said Germany's recession is drawing to a close and a gradual recovery of the economy is expected in the second half of the year, although this will be modest in the aftermath of the financial crisis.

The economic expectations for the Eurozone dropped by 3.2 points to 39.5 points. The indicator for the current economic situation for the region remained unchanged at minus 90.7 points.

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