ZEW Forecast Survey April 2007 – Banking Experts Expect only Slight Movement of Stock Markets and Interest Rates in Germany

In the coming six months, a rather subdued development on the German and European stock markets is to be expected. Short-term and long-term interest rates will rise only slightly in this period. These are the findings of a quarterly survey among leading financial market analysts of German banks conducted by the Centre for European Economic Research (ZEW) in Mannheim.

The experts assume the short-term interest rates (the three-month Euribor) to rise on average by 17 basis points to 4.09 per cent until mid-2007. The long-term interest rates are expected to stay virtually unchanged. The banks estimate that, on a six-month horizon, the short-term and long-term interest rates will increase to 4.11 and 4.12 per cent respectively thus remaining close together.

The same applies to the stock markets. The analysts expect only minor price movements in the German and European equity markets. The institutes that participated in the survey estimate, on average, a slight decline of the DAX to 6,869 points and a small increase of the DJ Stoxx 50 to 3,763 points by the middle of the year. In the next three months, the TecDAX is assumed to stagnate at 843 points. However, since 29 March 2007, when the experts made their forecasts, the indices have marked a considerable upward trend that apparently has been underestimated by the analysts.

Compared to the index levels at the end  of March, the average six-month forecasts for all indices seem optimistic. A large part of the participants expect the DAX to lie above the 7000 point mark, even in late September. On average, the experts estimate the DAX to close at a reading of 7,041 points. The DJ Stoxx 50 and the TecDAX will probably increase to 3,856 or 871 points.

According to the analysts, the value of the euro against the US dollar will not change significantly. On a three- and six-month horizon, the experts forecast an exchange rate of 1.33 US dollars per euro.

For the first time, the ZEW analysed the forecasts over a period from September 2005 to March 2007. The evaluation is characterised by a substantially improved forecasting quality of the German banks regarding all capital market parameters. The benchmark was defeated in all issues. The long-term ranking also shows that the short-term interest rates were particularly well assessed. What is striking is the high accuracy of stock index forecasts, which cannot be found in the long-term evaluation. In the overall ranking, Dresdner Bank keeps the lead regarding point forecasts, followed by Bayern LB, Deutsche Postbank and Commerzbank. For this period, Deutsche Postbank is the top trend forecaster of the overall ranking. However, more than 70 per cent of the trend forecasts made by Dresdner Bank and Hamburger Sparkasse are proved to be correct.

The evaluation of the forecasting quality of all three and six-month predictions provided by the 18 banks between June 2001 and March 2007 shows that the benchmark remains unbeaten in the overall ranking. The benchmark for exchange rates and interest rates is the value from the previous three or six months and the benchmark for shares is the long-term trend update. In terms of forecasting short-term interest rates, the TecDAX and the US dollar to euro exchange rate, some banks performed better than this “forecast by chance”. In the overall ranking, Dresdner Bank remains first, followed by Commerzbank, Bayern LB and DekaBank.

For the same period of time, trend forecasts of the participating banks were analysed. Similar to the point forecast, the prediction of short-term interest rates in particular is marked by a comparably high forecasting quality. The majority of trend forecasts for the DAX, TecDAX and US dollar to euro exchange rate were also correct. Hamburger Sparkasse leads the overall ranking of trend forecasters, followed by Bayern LB, Commerzbank, Dresdner Bank and HSBC Trinkaus.

Contact

Gunnar Lang, Phone   +49/0621/1235-372, E-Mail: lang@zew.de