ZEW Indicator of Economic Sentiment: Expectations for German Economy Improve Considerably

The ZEW Indicator of Economic Sentiment derived from the ZEW Financial Market Survey has increased considerably in August. It is now standing at +11.4 points.

This corresponds to an increase by 13.3 points within a month - the largest increase in two years. For the first time since December 2000 the share of analysts that are optimistic about the German economy surpassed the share of pessimists. As the ZEW Indicator is a leading indicator, this optimism is expected to be reflected in German industrial production in about six months.

In August 329 analysts and institutional investors participated in the ZEW Financial Markets Survey which is conducted monthly by the Centre for European Economic Research (ZEW), Mannheim. The participants were asked about their medium-term expectations concerning economic activity and capital markets. The ZEW Indicator of Economic Sentiment is the balance between positive and negative expectations of the future economic development in Germany within a timeframe of six months.

However, optimism of the survey participants for the German economy is based on expectations of a further cut in short term interest rates in the Euro area. 85 per cent of the polled analysts expect the European Central Bank to lower rates within the second half of this year.

Contact

Dr. Felix Hüfner, E-mail: huefner@zew.de