German Investor Confidence Hits 20-year High

- Headline ZEW sentiment rises unexpectedly

- Current conditions component beats forecast

- Investors ignore growth, Brexit, Covid-19 concerns


By Eric Culp, European Editor

LiveSquawk News



15 September 2020 / 09.55 GMT


FRANKFURT – Investor confidence in Europe’s largest economy has hit its highest level in more than two decades despite floundering Brexit talks, signs of a second wave of coronavirus cases, and further evidence that the recovery in the region could be slowing.


German headline consumer confidence, a measure of the outlook for the next six months, rose unexpectedly this month to 77.4 points, its best mark since March 2000, the German ZEW thinktank reported on Tuesday. This beat the market estimate of 69.8 and the August reading of 71.5, the highest result since January 2004.


The current conditions index increased to -66.2 to exceed both the market estimate of -72.0 and -81.3 last month, according to the ZEW’s monthly survey of investors and financial market experts.


“The overall outlook has improved significantly compared to the previous month,” the ZEW said, citing the rise in both readings.


Both indices for the Eurozone also recorded increases, the thinktank noted.


ZEW President Achim Wambach said the results show poll respondents “continue to expect a noticeable recovery of the German economy.


“Stalled Brexit talks and rising COVID-19 cases could not dampen the positive mood. However, the still negative outlook for the banking sector reveals fears of a rising number of loan defaults in the coming six months.”


Growth falters

Following the release of July Eurozone industrial production data on Monday, Oxford Economics warned, “The pace of recovery has declined, consistent with our view that the ‘easy wins’ of the mechanical rebound are close to being exhausted, while headwinds in the form of weak demand, limited capacity utilisation and disrupted supply chains continue to weigh on the sector.”


Commenting on Monday's industrial data, Capital Economics noted, “Output is still some way below its pre-crisis level and the pace of the rebound has slowed. We doubt that industry will return to full health for another couple of years.”


Investor survey results from Sentix released last week showed another gain in the overall index for Germany, but the rise came solely on improvements in optimism about the present, with the expectations components slipping this month.


And measures for the current environment in Germany and the Eurozone are still in negative territory for both the Sentix and ZEW polls, which indicates recessionary tendencies.


In the case of the ZEW, “The fact that current conditions have been improving but remain well below long-term trend, both for Germany and the Eurozone, confirmed what we have been seeing from other indicators,” said Nikola Nobile, chief Eurozone economist at Oxford Economics. “The recovery in the Eurozone is flattening out.”