ZEW Indicator of Economic Sentiment - Debt Crisis Slows Down Expectations

The ZEW Indicator of Economic Sentiment for Germany drops by 7.2 points in May 2010. The indicator now stands at 45.8 points after 53.0 points in the previous month. This value is well above the indicator’s historical average of 27.4 points.

Despite the dampened expectations, the financial market experts expect the German business activity to continue its recovery within the next six months. This assessment may have been reinforced particularly by increases in German exports and industrial production in March. On the other hand, the financial market experts consider the increasingly apparent problems of numerous countries with respect to their public debt as a major risk for German business activity.

"The decline of the sentiment indicator may reflect the rising uncertainty of consumers and investors with regard to the measures aiming at consolidating the public budgets in the euro zone. Another reason for the indicator’s decline may be the uncertainty with regard to the further development of the Euro exchange rate," says ZEW President Prof. Dr. Dr. h.c.mult. Wolfgang Franz.

The assessment of the current economic situation in Germany again improves considerably in May. The corresponding indicator rises by 17.6 points to minus 21.6 points. The economic expectations for the euro zone dropped in May by 8.4 points. The respective indicator now stands at 37.6 points. The indicator for the current economic situation in the euro zone improves by 3.9 points and now stands at minus 48.5 points.

The numbers quoted above refer to the entire survey period from May, 3rd to May, 17th 2010. It is worth mentioning that the expectations were influenced by the announcement of the EU crisis fund: Economic expectations for Germany dropped even stronger if only the period after May, 10th is considered. Apparently, financial market experts expect that the European governments’ forthcoming measures for consolidation of public budgets will have a dampening effect on demand, which can only partially be compensated by an expected depreciation of the euro and its positive effects on exports.

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Christian David Dick, E-mail: dick@zew.de  

Frieder Mokinski, Phone: +49 (0)621/1235-143, E-Mail: mokinski@zew.de