Confidence among German investors fell back more sharply than expected in December, a survey published Tuesday showed, with financial players worried Berlin's struggles to form a government could impact Brexit talks and EU reform plans.
The ZEW institute's monthly barometer measuring economic expectations for the coming months fell 1.3 points to 17.4, short of the 18.0 predicted by analysts.
Future expectations for the eurozone also fell 1.9 points, to 29.0.
"The outlook for the German economy remains positive overall" although the index was well short of its long-run average of 23.7 points, ZEW chief Achim Wambach commented in a statement.
Chancellor Angela Merkel's slow progress in building a ruling coalition after a tricky election result in September "did not significantly influence business expectations," he added.
But investors "see a negative influence on the future course of the Brexit negotiations and upcoming reforms to the European Union," Wambach said.
After three-way talks with the pro-business Free Democrats and ecologist Greens fell through, Merkel's conservatives have turned to the Social Democrats to explore renewing the left-right "grand coalition" that has governed since 2013.
Looking to other areas of the survey, investors' judgement of the present economic situation in the eurozone jumped 2.9 points, to 50.7, while the same measure for Germany edged up only slightly.
Along with investors, consumers and business leaders report high confidence as the German economy is buoyed by low unemployment, strong demand from abroad and cheap financing under the supportive policies of the European Central Bank.
