German Economic Sentiment Stronger Than Expected

Alan Penny

10 December 2019

3 min read

  • Germany reports ZEW figures stronger than anticipated
  • EU reports similar findings
  • Possible beginning of turnaround

During the early hours of Tuesday, the ZEW Indicator for the EU and German Economic Sentiment figures were reported. This is a “soft data” series of questionnaires sent out to business leaders around the European Union and Germany, showing signs of potential economic conditions going forward.

The German Economic Sentiment figures

The Germans released a ZEW Economic Sentiment figure of 10.7, which is much better than the anticipated 1.1 for the month. As this is almost nearly tenfold what was expected, the market will certainly be caught by surprise. Market participants will look at this as a good sign going forward as a potential beginning of a turnaround when it comes to economic conditions in Germany. Furthermore, the European Union released its ZEW Economic Sentiment figure as well, coming in at 11.2 for the month as opposed to the 2.2 figure anticipated.

 Both of these show confidence in the economy going forward and it could lead to something a little bit more sustainable as the sentiment of major business leaders in the core of Europe seems to be picking up.

The question now is why the figures were so much better than anticipated? A lot of what has been seen may be in reaction to the ECB being very likely to loosen monetary policy. They have already started in fact, and perhaps more of the “cheap money” out there will attract business investment. In that scenario, we could start to see a major turnaround in the European Union. It’s still early days, but this indicator is certainly pointing towards a better direction.

Going forward

Going forward, the Euro will likely slip a bit over the longer-term as the ECB is likely to continue to loosen monetary policy. Simultaneously, the European stock markets will likely strengthen as exports become cheaper. This may be exactly what business leaders were thinking when they gave such a high rating to the future economy, as export markets have been decimated in places like Germany. That is due mainly to global slowdown concerns and of course the US/China trade war which is only exacerbating that problem.

the Euro will likely slip a bit over the longer-term as the ECB is likely to continue to loosen monetary policy

With this, there is value to be found in the European Union for longer-term investors, and it does look as if business planners intend on putting more money into their businesses for them to expand. This should lead economies in a stronger direction in the EU. Investors now may find the market is in a balancing act when it comes to a cheap Euro but at the same time an expanding European Union.

What is being seen in the European Union is probably short-term good for the currency but longer-term softness. This means that most of the appreciation will probably be with stock markets such as the DAX, CAC, MIB, and the like. With the Federal Reserve on the sidelines, it’s very unlikely that the US dollar will lose a lot of strength to the Euro, perpetuating this cycle.

Written By
Alan Penny

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