ZEW Indicator of Economic Sentiment - With Momentum into the New Year

The ZEW Indicator of Economic Sentiment for Germany continued its recovery in January 2007. Compared with minus 19 points in December, the indicator’s current level of minus 3.6 point is nevertheless still far below its historical average of 33.5 points.

The main reason for the performance of the indicator might be the ongoing positive development on the German labour market and the associated improvement in employees' income prospects. Furthermore, the flourishing business of German companies suggests that investment demand will continue to remain dynamic. German exports are expected to be supported by the high competitiveness of German enterprises. A risk factor for exports, however, remains the possible slacking off in US demand for German goods.

"Financial experts continue to be optimistic. The situation is both highly pleasing and encouraging for the future. However, the risks should not be neglected entirely: rising energy prices, a downturn in the US economy and exaggerated domestic wage trends," comments ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

Based on the very strong GDP growth anticipated in 2006, the assessment of the current economic situation in Germany by surveyed financial experts has improved significantly. The corresponding indicator is up from 63.5 points to 70.6 points in January.

Economic expectations for the euro zone improved in January as well. The indicator rose by 1.2 points and now stands at minus 1.8 points. The corresponding indicator for the current economic situation in the euro zone increased significantly during the month by 9.3 to 66.1 points.

282 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 December 27, 2006 to January 15, 2007 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