ZEW Indicator of Economic Sentiment - Expectations Again Declined

The ZEW Indicator of Economic Sentiment for Germany dropped by 16.6 points in September. Compared with minus 5.6 points in August, the indicator's current level of minus 22.2 points is now far below its historical average of 34.7 points.

There are different reasons for the anew decline of the indicator. First of all, the drop of world demand as a result of the expected slowdown of the US economy is likely to negatively affect German exports. Secondly, the positive impacts of domestic demand will lessen at the beginning of next year, as the VAT increase will slow down private consumption. Finally, investment projects will be more expensive due to the restrictive monetary policy of the ECB.

Again, the financial experts surveyed give a more favourable assessment of the economic situation in Germany. The corresponding indicator is up from 33.6 points to 38.9 points in September.

"The gap between expectations and the current situation again indicates that the positive business climate is at risk. The German government should not ignore these alarm signals und redress the serious imbalances in its economic policy", said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

Economic expectations for the euro zone also declined considerably in September. The indicator decreased by 11.5 points and now stands at minus 10.2 points. This month the

corresponding indicator for the current economic situation in the euro zone rose by 5.6 points to 40.5 points.

307 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 from September 4 to September 18, 2006 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 horizontal line indicates the historical mean of the indicator.

Contact

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

Matthias Köhler, E-mail: koehler@zew.de