ZEW Indicator of Economic Sentiment - Business Expectations Affected by Subprime Crisis

The ZEW Indicator of Economic Sentiment for Germany dropped by 17.3 points in August 2007 and now stands at minus 6.9 points after 10.4 points in July. This is well below its historical average of 32.6 points.

The ZEW Indicator of Economic Sentiment for Germany is being overshadowed by the crisis on the US-mortgage market for subprime-loans. The experts see risks that might arise from this crisis for the development of the real economy in the United States and the potential consequences for the German economy. Their assessment regarding the current profit situation of German companies dropped significantly, in particular, for firms in the banking and insurance sector.

"The crisis is first and foremost a problem of the United States. Potential consequences on the German economy will be limited according to our current knowledge. Possible credit crunches come together with very good balance sheets of German companies. German exports might, however, be impaired by the lower purchasing power of US-consumers. The negative consequences for consumer confidence in Germany due to the drop of stock market prices will, however, most likely be limited," said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

According to a separate evaluation of 122 survey results until August 8th, business expectations for Germany dropped by 7 points to 3.4 points.

The assessment of the current economic situation in Germany also deteriorated in August. The corresponding indicator dropped by 8 points to 80.2 points.

Economic expectations for the euro zone dropped in August as well. The indicator fell by 13.3 points and now stands at minus 6.1 points. The corresponding indicator for the current economic situation in the euro zone decreased this month by 7.9 points to 73.1 points.

291 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 July 30 to August 20, 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