German investor morale rises more than expected in July, ZEW finds

By Miranda Murray and Maria Martinez

BERLIN, July 21 (Reuters) - German investor morale rose much more than expected in July as a government reform package brightened the mood despite uncertainty about the conflict in Iran, a survey found on Tuesday. 

The indicator of economic sentiment more than doubled, to 26.3 points from 10.5 points the month before, the ZEW economic research institute said.

Analysts polled by Reuters had anticipated the reading rising to 17.5 points. 

"The economic outlook continues to improve in July; it seems that the reforms are having an effect," said ZEW President Achim Wambach. 

Chancellor Friedrich Merz outlined a package of pension, tax and labour reforms this month, along with measures to cut red tape that he said would boost growth, jobs and competitiveness while maintaining social welfare protections.

"Even if the measures alone will not be enough to restore Germany's former economic strength, they do send an important signal: the government remains capable of taking action," said Andreas Scheuerle, economist at DekaBank, adding that this opens the door to further reforms.

ASSESSMENT OF THE CURRENT SITUATION IMPROVES

The assessment of the current economic situation also rose in July, though it remained in negative territory at minus 77.6 points. In June that reading had been at minus 81.0 points. 

"The German economy has turned the corner," said Thomas Gitzel, chief economist at VP Bank. "The situation is significantly better than the sentiment suggests."

He said retail sales, industrial orders and industrial production had all increased in May and as a result, GDP might even show slight growth in the second quarter.

"Nevertheless, the uncertainty associated with the developments in the Iran conflict and the oil price remain a crucial factor affecting the prospects for a recovery of the German economy," Wambach said.

The survey was conducted in the period from July 13 to July 21. Current developments in the Middle East are likely underrepresented in the survey, said Alexander Krueger, chief economist at Bethmann Hal.

"It is therefore appropriate to temper the euphoria," Krueger said. "Whether the improved economic expectations will hold depends on [United States President Donald] Trump and the mullahs."

(Reporting by Miranda Murray, Maria Martinez and Rene Wagner, editing by Linda Pasquini and Timothy Heritage)