German Investor Outlook Surges, Current Mood Worsens
German investors are bullish about the next six months but continue to curse the current environment.

- Economic sentiment jumps for second consecutive month

- Current conditions worst since 2003


By Eric Culp

European Editor, LiveSquawk News



Frankfurt, 19 May 2020 (LS NEWS) – Investor confidence about the coming six months in Germany rose sharply again in May, but optimism about the present situation continued to degrade as Europe’s largest economy slowly exits lockdown.


The ZEW’s forward-looking economic sentiment index moved to its highest level since April 2015 with a jump to 51.0, handily beating market expectations of a 33.5 reading and last month’s 28.2.


But the confidence indicator for the current situation fell again, dropping to an 18-year-low -93.5 versus last month’s -91.5. The reading was expected to show a slight increase.


The results of this month’s ZEW Eurozone survey presented a similar disparity, with economic sentiment rising sharply while the current situation reading slipped lower.


Germany, the world’s fourth-largest economy, faces a long road to recovery, according ZEW President Achim Wambach, who said economic output will not return to 2019 levels until 2022.


Germany fell into recession in the first quarter when economic output shrank at a quarterly rate of 2.2pct. Most observers expect an even larger contraction in the current quarter, with some estimates predicting declines of 10pct and beyond.


The Bundesbank, Germany’s central bank, said Monday that economic activity in the April-June period will be “significantly lower” than in the previous three months, but suggested the rebound may begin before July.


Germany's IFW Institute said Tuesday that it expects the German economy to contract by more than 7pct this year. 



Source: Pantheon Macroeconomics.

‘Don’t get carried away’


ING Chief German Economist Carsten Bzreski warned that people should not “get carried away” by the ZEW report. “Coming from a very low point, it is no surprise that the future looks more optimistic. It is simply in the technical nature of the index, which is a relative assessment of future developments vis-à-vis the current situation.


“Given that traditionally, the ZEW index has a better track record in predicting turning points in the economy, rather than predicting exact outcomes for GDP growth, it is interesting to look at the difference between current assessment and expectations. This difference is currently larger than in 2008, suggesting investors’ increasing optimism that the worst might be behind us.”


Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, also cautioned against too much optimism following Tuesday’s report. “Rising ZEW expectations, in relative terms, normally is a very bullish signal, for both markets and the economy, but on this occasion we have to take it with a pinch of salt.


“We agree with the underlying thrust of the argument; conditions will improve going forward, but we are less sure that they will do so at the speed implied by the jump in expectations.” 


Investors have had their say this month. German business leaders will now weigh in before the Ifo thinktank is set to release the results of its latest business confidence survey on 25 May (08.00 GMT).