World Economy

Germany’s ZEW Survey Creeps Higher

German investor confidence rose 0.6 points compared with the September result.German investor confidence rose 0.6 points compared with the September result.

The outlook for German industry is brightening, albeit at a slower than expected pace, while prospects for eurozone economic development have deteriorated.  

German investor confidence rose by a fraction during October, according to the latest ZEW Economic Sentiment survey, although the rise was not as pronounced as many economists had hoped for, reported.

Economists had forecast a rise to around the 20.1 level for October, up from the 17.0 threshold seen in September, but the index rose to just 17.6 for the period instead.

“The indicator currently stands at 17.6 points, which corresponds to an increase of 0.6 points compared with the September result. The indicator, however, still remains below the long-term average of 23.8 points,” says Achim Wambach, president of ZEW.

The ZEW survey polls 350 institutional investors in Germany for their view of current national and international economic conditions and their outlook for the six months ahead.

“The improved outlook for the coming six months is not least the result of the surprisingly positive growth figures seen in the previous months. In August, figures for both production and incoming orders were significantly better than expected,” says Wambach.

ZEW notes improved conditions for German exports as well as the broader economy, stemming from a firming economic recovery in Europe, which could have implications for European Central Bank monetary policy.

“The fact that the inflation rate is rising again, and expected to climb further, equally points towards a positive economic development in Germany, making a change in the ECB’s monetary policy more likely,” says Wambach.

The euro extended earlier losses in response to the report, dropping further against the US dollar, Swiss franc and Japanese yen. It pared losses against sterling, much of which had occurred in the half hour leading up to the ZEW release—a response to UK October inflation numbers.  The pound-to-euro rate was quoted 0.29% higher at 1.127 shortly after the release while the euro-to-dollar rate was down 0.28% at 1.176.

“It is encouraging that a majority of investors still expect conditions to improve despite the stronger likelihood that the ECB will taper its asset purchases next year and the fact that the euro exchange rate has remained at a fairly high level,” says Jennifer McKeown, chief European economist at Capital Economics.

McKeown notes that the ZEW survey results only have a very loose relationship with German GDP so are not an ideal indicator of German growth.

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