ZEW Indicator of Economic Sentiment - Expectations Slightly Decreased

The ZEW Indicator of Economic Sentiment for Germany dropped slightly by 5.2 points in October. Compared with minus 22.2 points in September, the indicator's current level of minus 27.4 points is now far below its historical average of 34.3 points.

The favourable development of incoming orders for German companies and the relatively low oil price during the survey period had a positive affect on the indicator. Business expectations, however, were overshadowed by the potential downturn of the US economy, probable further interest rate increases by the ECB and, above all, consumers' declining purchasing power as a result of the VAT increase and additional tax burdens in 2007.

"The good news is that expectations are about to stabilize. The bad news is that they will level out at a comparatively low level which was also caused by the unsuccessful reform of the German health system", said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

This month the financial experts' assessment on the current economic situation in Germany reaches a high level. The corresponding indicator is up from 38.9 points to 42.9 points in October.

Economic expectations for the euro zone also slightly decreased in October. The indicator lost 2.3 points and now stands at minus 12.5 points. The corresponding indicator for the current economic situation in the euro zone slightly increased in this month by 2.6 to 43.1 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 from October 2 to October 16, 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