German Economic Sentiment Improves Strongly Despite Recession Worries

Germany’s ZEW investor confidence index rose sharply in October as financial market experts expectations improved on hopes of further easing in inflation and stability in interest rates, while the current assessment indicator set a new three-year low signaling that the biggest euro area economy is in recession.

The economic sentiment indicator gained for a third month in a row, up 10.3 points to minus 1.1 in October, survey data from the think tank ZEW showed Tuesday. Economists had forecast a score of minus 9.3. The latest reading was the strongest since April, when it was 4.1.

“It seems that we have passed the lowest point,” ZEW President Achim Wambach said.

While there was a noticeable uptick in the economic expectations of financial market experts, their assessment of the current economic situation in Germany was barely changed.

“The heightened economic expectations are accompanied by the anticipation that inflation rates will decrease further and the fact that now more than three-quarters of respondents anticipate stable short-term interest rates in the eurozone,” Wambach added.

“Negative factors such as the Israel conflict – cited by some respondents as a reason for revising their growth forecasts downward – had only limited impact on the overall more optimistic outlook.”

The current assessment index of the survey fell for a sixth month in a row and shed 0.5 points to reach minus 79.9, a three-year low. Economists had expected a score of minus 80.8.

The fall in the current conditions index supports the view that the German economy is probably in recession, Capital Economics economist Andrew Kenningham said.

The ZEW survey also showed that the economic sentiment indicator for the euro area rose 11.2 points in October to 2.3, thus returning to the positive territory.

However, the current situation indicator for Eurozone tumbled by 9.8 points to minus 52.4 points.

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