VW crisis, emerging markets hit German investor morale

By Michelle Martin

BERLIN (Reuters) - Morale among German analysts and investors plummeted in October to its lowest level in a year as the diesel emissions scandal at carmaker Volkswagen <VOWG_p.DE> and weakness in emerging markets took their toll, a survey by ZEW think tank showed on Tuesday.

The survey gave the first insight into how the biggest business-related scandal in Volkswagen's 78-year history is hitting sentiment in Europe's largest economy at a time when a series of data releases have shown German industrial orders, output and exports tumbling.

Mannheim-based ZEW said economic sentiment, as measured by its monthly survey, fell to 1.9 points in October from 12.1 in September. That was the weakest reading since October 2014 and far below a consensus forecast for a reading of 6.0.

"The emissions scandal at Volkswagen and sluggish growth in emerging markets are dampening the economic outlook for Germany," ZEW President Clemens Fuest said in a statement.

But he added that a positive domestic environment and recovering euro zone made it unlikely that the German economy would slip into recession.

Volkswagen is Europe's largest carmaker and is one of Germany's largest employers, with more than 270,000 jobs in its home country and even more working for suppliers.

The auto industry accounted for 17.9 percent of Germany's 1.1 trillion euro in exported goods last year, according to Deutsche Bank, and has enjoyed above-average export growth since 2009.

Thomas Gitzel, economist at VP Bank, blamed the Volkswagen scandal for the sharp drop in the ZEW index.

"The VW emissions scandal probably depressed the mood among financial market analysts and order intake has also been disappointing recently. That will take the wind out of the optimists' sails," he said.

But a record-low jobless rate, decent wage rises and low interest rates will keep the German economy on track, he said, adding that the influx of refugees "is like a mini economic stimulus program due to higher government spending".

Germany was hit by a raft of disappointing data for the month of August last week, with exports plunging by the largest amount since the height of the global financial crisis, industrial output posting its steepest drop in a year and orders also sliding.

A senior official told Reuters on Tuesday that the German government was getting ready to trim its estimate for growth this year to 1.7 percent.

ZEW's index tracking current conditions dropped to 55.2 points from 67.5 points in September, undershooting expectations for a drop to 64.7. The survey, in which 217 analysts and institutional investors took part, was conducted between Sept. 28 and Oct. 12.

(Reporting by Michelle Martin; Editing by Noah Barkin)