ZEW Better Than Anticipated in Germany

Alan Penny

12 November 2019

3 min read

  • Although negative, better than anticipated
  • Major economic sentiment figure for Germany
  • Climb of over 20 points

The ZEW Indicator of Economic Sentiment for Germany has increased quite a bit in November. The release was -2.1 points, climbing 20.7 points from the month of October. That is a substantial turnaround, suggesting that perhaps things are starting to get better in Europe’s largest and most important economy.

A few observations

The participants overall suggested there was hope that the global economic policy environment would help continue to underpin economies around the world. Remember, Germany is highly levered to exports, so it is very sensitive to various places around the world including the United States, China, and Japan.

The Brexit situation has gotten a bit better between the EU and the UK, showing signs of at least relatively conciliatory tones. It looks as if the European Union has given up the idea of forcing the United Kingdom to stay, as it’s obvious this strategy isn’t working. At this point, it’s going to come down to avoiding as much damage as possible.

There were other factors that participants noted, such as that the auto tariffs from the United States seem less likely now. However, it should be noted that Donald Trump has not stated how he feels about rolling that back.

Beyond that, the United States and China seem to be getting closer to an agreement, and therefore the Germans are hopeful that exports will start to pick up again.

The economic outlook for the European Union has improved slightly, and this indicator is just the latest sign of that. This isn’t hard data but simply soft data, meaning it is based on a survey, as opposed to an actual measurement of trade.

That being the case, the likelihood of this one announcement making big changes is probably asking too much. Still, it is certainly yet another reason to think that the European Union could become a bit more constructive in the future.

Effect on the European Union

As Germany goes, so does the European Union in general. While it is not expected to change everything in one shot, we may start to see a slowing down of selling in the currency markets of the euro. Perhaps this could help ease some of the upward pressure on the US dollar, although we need to see more hard data come into play.

As Germany goes, so does the European Union in general.

Beyond that, if the market can get some type of good news involving Brexit, that will probably send the EU much higher in value. That’s not only based on the currency markets, but also on the stock markets. The ZEW indicator should be closely monitored because it gives an idea of how businesses in Germany see the rest of the world as well as internal markets.

Confidence is a major factor in markets, so pay attention to the other European announcements to see whether this is the beginning of the end of economic weakness.

Written By
Alan Penny

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