LONDON (MarketWatch) -- Worries about slowing U.S. growth and unresolved problems in the euro zone contributed to a sharper-than-expected drop in Germany's closely-watched ZEW economic-sentiment indicator.
"In their expectations, financial experts put more weight on risks than they did before," said ZEW President Wolfgang Franz.
Franz said the survey found rising worries about the sustainability of the U.S. recovery as well as ongoing worries about sovereign-debt problems in the euro zone, as reflected by large yield spreads for Greek government debt over German bonds.
Analysts, however, still see a low risk of a double dip in Germany, he said.
The euro (U.S.:EURUSD) came under pressure in the wake of the data and changed hands at $1.2848 in recent action, down 0.1% from Monday.
European stocks saw added pressure following the release. Read Europe Markets.
Separately, the European Union statistics agency Eurostat said industrial production across the 16-nation euro zone was flat in July. Compared to the same month last year, production rose 7.1%. Economists had forecast a 0.2% monthly rise and an 8% annual increase.
The September ZEW indicator was based on a survey of 277 German financial-market professionals, who were asked about medium-term prospects for the economy and capital markets.
Germany, Europe's largest economy, saw second-quarter gross domestic product expand by 2.2%, the strongest quarterly rise in 20 years. The ZEW said stagnating industrial production in July and a decline in incoming orders "may not only indicate a temporary slowdown but could well be the first sign of a flattening of economic activity."
The think tank said survey participants don't expect German capacity utilization to see further improvement in the second half of the year, due partly to the expiration of economic stimulus measures in several countries and the lack of a recovery from the financial crisis in many industrialized countries. That would put pressure on export-oriented sectors.
The survey's current-conditions gauge, meanwhile, continued to improve, rising to 59.9 from 44.3 in August.
Economists note that there isn't a strong correlation between the ZEW gauge and economic output, although the indicator is often viewed as a signal to turning points in the growth picture.
Carsten Brzeski, economist at ING Bank in Brussels, said the combination of a fall in the sentiment gauge and a rise in the current-conditions index doesn't always signal an imminent slowdown in growth. A similar divergence in the summer of 2006 was followed by solid growth until the start of the financial crisis, he said.
"After an exceptional performance in [the second quarter], several indicators are heralding the inevitable growth slowdown of the German economy in the second half of the year," Brzeski said, in a note to clients.
"However, with increasing backlogs, strong business confidence, improving investment plans from businesses and the strengthening of the labor market, 'slowdown' is actually not the best description. The German economy is only easing back the throttle," Brzeski said.
