ZEW Indicator of Economic Sentiment - Experts Regard Financial Crisis as Risk for Real Economy

The ZEW Indicator of Economic Sentiment for Germany dropped by 11.2 points in September 2007 and now stands at minus 18.1 points after 6.9 points in August. This is well below its historical average of 32.4 points.

The second considerable decline of business expectations since the beginning of the subprime-crisis makes clear that the financial experts do not rule out the possibility that the crisis could spill over to the German economy. In particular, German exports might be hit by an economic downturn in the US. The depreciation trend of the US-Dollar versus the Euro constitutes another risk. Banks, insurers and the construction sector are those sectors within the German economy which the experts expect to develop weaker, while the consumption sector is assessed to be robust.

"Besides the fundamental data for Germany, which are still good, the concerns of investors might dim the business climate. The higher uncertainty and the loss of confidence may also have a negative impact on the dynamics of the development of the German economy," said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

The assessment of the current economic situation in Germany also deteriorated in September. The corresponding indicator declined by 5.8 points to 74.4 points.

Economic expectations for the euro zone dropped in September as well. The indicator fell by 14.2 points and now stands at minus 20.3 points. The corresponding indicator for the current economic situation in the euro zone decreased this month by 7.5 points to 65.6 points.

304 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 September 3 to September 17, 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