Investor confidence in Germany dropped in August as record oil prices could dampen the country's economic recovery, according to experts.
Analysts think exports will drop if oil prices don't
High oil prices are probably responsible for a larger than expected drop in investor confidence, according to a report released on Tuesday by the Center for European Economic Research (ZEW).
Investors are "concerned that the recovery's dynamic is weakening because uncertainties about the development of the global economy and the oil price have increase," ZEW President Wolfgang Franz said in a statement, according to Bloomberg news service.
It's a sentiment shared by the officials at Germany's central bank, the Bundesbank.
"The desired domestic demand revival could be hampered by further oil price increases," bank officials wrote in their monthly report released Monday.
The high price of oil already lowered exports in June. Exports were mainly responsible for the 2 percent growth Germany experienced in the first half of 2004 compared to 2003. Continuing high prices could create a major problems for Germany, Europe's largest economy, experts said.
"The biggest risk for the economy is the oil price,'' Jonathan Hoffman, chief European economist at Royal Bank of Scotland in London told Bloomberg news service. "We've seen the peak in growth in the second quarter. From here, the recovery will proceed at slower rates."
Global uncertainty keeps prices up
Venezuelan President Hugo Chavez
Even after Venezuela's President Hugo Chavez (photo) won a recall referendum and promised to keep the world's fifth largest crude exporter's oil flowing, fighting in Iraq, possible terror attacks in Saudi Arabia and lingering shipment delay concerns about Russia's largest oil producer, Yukos, are reason enough to keep German experts nervous.
"A $10 (€8.13) per barrel risk premium would raise the German oil bill to $27 million (€33.21 million) a day," Credit Suisse's oil expert Jeremy Baker told the Financial Times Deutschland.
But there is little the Organization of Petroleum Exporting Countries (OPEC) can do to lower prices, according to the cartel's governor, Kazempour Ardebili. OPEC member countries, which are responsible for providing about half the world's oil exports, are already pumping a 25-year high of 30 million barrels per day.On Monday, oil prices, which have gone up 44 percent this year, reached a new high of $46.91 per barrel (159 liters) of US light crude, while a barrel of North Sea Brent crude also hit a record $44.11 in New York and London.