ZEW Indicator of Economic Sentiment - Stabilization Remains Elusive

The ZEW Indicator of Economic Sentiment for Germany fell again in May by a substantial -6.2 points. At its current level of +13.9 points, compared with +20.1 points in April, the indicator is now well below its historical average of +34.2.

The renewed slide in business confidence may be due to fears of a tail off in the momentum of the global economy. Because of continuing weak domestic demand, the German economy remains particularly dependent on global economic developments. "The further deterioration in expectations is a matter of some concern. One reason for the general lack of confidence which the figures express may also be the unsatisfactory economic reasoning underlying a number of contributions to current public debate", comments ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

Based on the unexpected pick up in economic growth during the first three months of 2005, experts take a much more optimistic view of Germany's current economic situation. The indicator of the current economic situation is up from -73.0 to -69.3 points in May.

Economic expectations for the euro zone are significantly down for May. The indicator has slipped -9.8 points compared with last month's figures and now stands at +14.8 points. The corresponding indicator for the current economic situation in the euro zone has improved from -32.8 to -31.0 points.

298 analysts and institutional investors participated in this month's ZEW Financial Markets Survey which is conducted on a monthly basis by the Centre for European Economic Research (ZEW), Mannheim. The participants were asked about their medium-term expectations concerning economic activity and capital markets. The ZEW Indicator of Economic Sentiment shows the balance between positive and negative expectations regarding future economic activity in Germany within a timeframe of six months. The solid line indicates the historical mean of the indicator.

Contact

Volker Kleff, E-mail: kleff@zew.de

Dr. Sandra Schmidt, E-mail: s.schmidt@zew.de