ZEW Indicator of Economic Sentiment - Expectations Drop Significantly

The ZEW Indicator of Economic Sentiment for Germany fell by -12.7 points in May. However, compared with +62.7 points in April, the indicator's current level of +50.0 points is still well above its historical average of +35.3 points.

The strong appreciation of the Euro against the US dollar, which may burden German export industry, may have been one reason for the current drop in economic expectations. Another reason is the skyrocketing oil price, which significantly reduces the real personal income of consumers. Furthermore the premature trust placed in the German government seems to be diminishing.

"The disillusion that set in within the last months seems to have continued. Debates on tax increases and minimum wages are not appropriate to raise investor confidence. The reform pressure is increasing", said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

The financial market experts again give a more favourable assessment on the economic situation in Germany. The corresponding indicator is up from 2.9 points to 8.7 points in May.

Economic expectations for the euro zone have also worsened. The indicator decreased by -11.0 points and now stands at 47.7 points. This month the corresponding indicator for the current economic situation in the euro zone has increased by +4.0 points to 18.3 points.

314 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 April 24 to May 15, 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