ZEW Indicator of Economic Sentiment - Expectations Have Stabilized

The ZEW Indicator of Economic Sentiment for Germany dropped slightly by 1.1 points in November. Compared with minus 27.4 points in October, the indicator's current level of minus 28.5 points is still far below its historical average of 34.0 points.

The development of the indicator indicates that as of May 2007 the German economy will recover from the predictable drop in demand due to next year's increase of the tax burden. Moreover, the low oil price and the upturn of the labour market probably had a favourable effect on economic expectations. But there are still concerns over the world economy and potential interest rate increases.

"The downward trend of expectations seems to have come to a halt. This indicates that consumer demand will stabilise in the second half of next year. Furthermore, the decisions on the corporate tax reform, which will improve the German economy's attractiveness, are sending out a positive signal. Finally, economic forecasts for next year as given, for instance, by the German Council of Economic Experts are relatively high", said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

This month the financial experts' assessment of the current economic situation in Germany improved significantly. The corresponding indicator is up from 42.9 points to 53 points in November.

Economic expectations for the euro zone improved in November. The indicator rose by 1.5 points and now stands at minus 11 points. The corresponding indicator for the current economic situation in the euro zone increased significantly in this month by 6.9 to 50 points.

298 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 October 30 to November 13, 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