German ZEW Economic Sentiment Improves

Alan Penny

21 January 2020

3 min read

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  • ZEW has been released to fanfare
  • The figure has outperformed expectation
  • This is a strong sign for EU

During the early hours of Tuesday, Germany released the ZEW figures for the month. This measures economic sentiment by interviewing business leaders around Germany to find out how they see the economic conditions are going forward. This is a crucial measure of the German economy.

Europe’s largest economy is on the rise

The German ZEW figure came in at 26.7, which was much better than the anticipated 15.2 for the announcement. Furthermore, the previous month had only been 10.7, meaning this is a massive change going forward.

This suggests that Europe’s largest economy is starting to turn around a bit, as the latest economic indicators have started to stabilize. It is yet another sign that, perhaps, the European Union will come out of its negative tailspin much quicker than anticipated.

Europe’s largest economy is starting to turn around a bit, as the latest economic indicators have started to stabilize

Considering the announcement came out at nearly twice the positivity it was supposed to reach, a lot of traders were caught off guard as the euro recovered the 1.11 level against the US dollar again. This also has helped German equities, as one would expect. The DAX will be one of the more visible ways for investors to express their interest in the German economy.

The announcement has beaten estimates by so much, so the question now remains, what happens next?

Lately, most of the economic figures have been a bit better. Recent estimations for German GDP is 0.6%, which while not necessarily strong, is positive. It appears that the Germans are, in fact, going to avoid hitting a recession. That in and of itself will be a positive sign, and therefore it’s not a huge surprise that the euro has seen interest during the day.

Germany is stronger than anticipated

The main takeaway here is that Germany is much stronger than anticipated. Remember, the ZEW is a forward-looking indicator, meaning it shows what business leaders believe are going to happen next.

What will be interesting to see going forward is whether or not the European Union can back up some of the optimism with next month’s economic results. It’s worth keeping in mind that Germany is roughly 80% of the economic strength and output of the entire European Union.

The uneven growth of the European Union continues to be a major issue, but that has been the case since its inception. Simply put, other economies in the European Union have struggled to keep up with the Germans at the best of times. Places like Greece or even France simply aren’t as economically strong as Germany.

Now that the United Kingdom is leaving the European Union, Germany has become even more important, with France a very distant second when it comes to economic output. The euro is essentially a proxy for the Deutschmark, the previous currency for Germany.

This announcement shows that, perhaps, the attitude of Germany’s business community is starting to pick up, meaning there will be more capital expenditure and the like. This shows that the German economic engine may be getting ready to turn back on and bring strength to Europe.

Written By
Alan Penny

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