Key German Investor Confidence Index Falls Slightly

The ZEW index declined to minus 41.4 points from minus 40.7 in April, the minus indicating that a majority of the 300 analysts surveyed were pessimistic.

Economists had predicted a slight rise in the indicator after signs that Europe's largest economy was shrugging off the effects of the global financial crisis.

But the ZEW said that although economic expectations in the United States were more positive, with knock-on benefits for German exports, "inflationary risks remain high."

German annual consumer inflation came in at 2.6 percent in April, after surging to a 12-year high of 3.3 percent in March. The official target set for the euro zone is just under 2 percent.

"German firms were very successful in the first quarter of 2008. However, the economic momentum should gradually lose speed because of increasing refinancing costs and a strong euro," ZEW President Wolfgang Franz said.

GDP up

Last week, the statistics office said German gross domestic product (GDP) had risen unexpectedly sharply in the first quarter.

German GDP grew 1.5 percent in the first three months of 2008 compared to the last three months of 2007, the highest increase in 12 years and well above expectations.

German shares have also performed strongly in recent weeks, the DAX 30 index of the top 30 companies traded in Frankfurt rising from a low of 6,182 in March to around 7,160 at noon Tuesday.

The ZEW is forecasting German growth to slip back to 1.7 percent this year compared to 2.5 percent in 2007.