German Investor Moral Slightly Down

The German economy is expected to improve in the next six months despite a slight deterioration in investor morale in February, according to a survey on Tuesday that showed an upbeat outlook overall.

Europe’s largest economy is powering ahead on a consumer-led upswing driven by record-high employment, increased job security, rising real wages and low borrowing costs. A rebound in exports and company investments are also boosting growth, Reuters reported.

The Mannheim-based ZEW research institute said its monthly index of economic sentiment fell to 17.8 from 20.4 in January—a smaller decline than the 16.0 forecast in a Reuters poll.

A separate gauge measuring investors’ assessment of the economy’s current conditions edged down to 92.3 from 95.2 last month, which was the highest level since the survey began in 1991. The Reuters consensus forecast was for a reading of 93.9.

“The latest survey results continue to show a positive outlook for the German economy,” ZEW researcher Achim Wambach said, adding that respondents’ assessment of current conditions was still at a very high level.

Wambach said German economic growth was driven by good developments in both the global economy and private consumption. He noted, however, that inflation expectations for Germany and the eurozone as a whole had started to increase.

The euro has posted considerable losses on Tuesday, after a slow start to the week. Currently, the pair is trading at 1.234, down 0.53% on the day. On the release front, German and eurozone confidence reports for February beat the estimates, but slowed compared to the January releases.

German ZEW Economic Sentiment came in at 17.8, beating the estimate of 16.0 points. Eurozone ZEW Economic Sentiment dropped to 29.3, above the estimate of 28.4. German PPI improved to 0.5%, above the estimate of 0.3%. This marked the strongest reading since January 2017.

On Wednesday, Germany and the eurozone release manufacturing PMIs.

The Zew indicator is compiled from a survey of banks, insurance companies and in-house finance teams who are asked about their assessments and forecasts for interest rates, stock markets and exchange rates across a clutch of major global economies, and is meant to serve as a leading indicator for the German economy.

Decline in Equity Prices

Jennifer McKeown of Capital Economics said the slightly weaker ZEW figures reflected a decline in equity prices rather than broader concerns about the economy.

She also pointed to political progress in efforts by Chancellor Angela Merkel’s conservatives to forge a coalition government nearly five months after a federal election.

“The likely formation of a grand coalition government should mean some fiscal support for households over the next couple of years, which combined with a moderate pick-up in wage growth should boost household spending,” she added.

Members of Germany’s Social Democrats on Tuesday started voting on whether their party should enter a new coalition with Merkel’s conservatives in a postal ballot which could scupper the chancellor’s fourth term.

London-based Capital Economics expects the German economy to expand by 2.7% this year. This would be above the government’s more conservative forecast of 2.4%.

The federal statistics office last week confirmed an earlier estimate for full-year growth of 2.2% in 2017 which translated into a calendar-adjusted 2.5%, the strongest pace since 2011.