FRANKFURT – The economic outlook for Germany worsened yet again this month, according to a poll of financial maker experts, who also said the current environment has deteriorated as analysts issued warnings about a recession in Europe's largest economy.
Germany’s ZEW economic thinktank said Tuesday that its May expectations measure for the coming six months dropped to -10.7 points, its worst showing since December and well below the forecast of -5.0 and the 4.1 reading reported last month. The measure was at 28.1 in February.
The current conditions reading of -34.8 points was better than the -37.0 forecast but down from the -32.5 last month.
The outlook for the euro area also declined sharply, but the current conditions reading improved, the ZEW said.
The third straight drop in the forward-looking measure for Germany has heightened growth concerns, with ZEW President Achim Wambach rattling off a list of looming issues that include the possibility of a mild German recession, expectations of further interest rate hikes by the ECB, and a potential default by the United States in the coming weeks adding uncertainty to global economic prospects.
Following the release of the ZEW report, euro strength had the single currency testing 1.09 versus the greenback.
German pollster Sentix said last week that both its measures for the current situation and expectations over the next six months declined, with the latter falling to its lowest level since December.
For Sentix, the culprits were clear. “The negative effects of high inflation and thus dwindling purchasing power are gradually becoming visible in Germany,” with leading retailers that normally present stable growth “now feeling painful declines in sales.”
The ‘R’ word returns
Thomas Gitzel, chief economist at VP Bank, is reviving fears about economic contraction, noting that the latest ZEW reading on the next six months “is now giving a clear message: a recession is imminent.”
He cited worrisome economic reports to support his point. “Most recently, the data on exports, industrial production, and retail sales were a big disappointment.”
Germany produced some dismal economic data in March: exports fell 5.2% on the month, factory orders dropped 10.7%, and retail sales were off 2.4%.
“The ZEW index is definitely one of the worst-performing leading indicators in Germany when it comes to predicting GDP growth," ING noted. "However, it has a decent track record in predicting turning points in the economy. With this in mind, today’s ZEW sends a worrisome message: three consecutive drops are a new trend, a trend in the wrong direction.”
Preliminary data from Germany said its economy flatlined in the first quarter after shrinking 0.4% in the final three months of last year. But the second growth estimate for last quarter due on 25 May could show that the world’s fourth-largest economy was in a technical recession, which is commonly defined as two consecutive quarters of GDP contraction.
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- Decline in expectations more than forecast
- Current situation reading beats prediction
- Rate hikes, possible US default darken mood
- Recession worries loom
- EUR/USD tops 1.09 following news
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
16 May 2023 | 10:50 GMT
FRANKFURT – The economic outlook for Germany worsened yet again this month, according to a poll of financial maker experts, who also said the current environment has deteriorated as analysts issued warnings about a recession in Europe's largest economy.
Germany’s ZEW economic thinktank said Tuesday that its May expectations measure for the coming six months dropped to -10.7 points, its worst showing since December and well below the forecast of -5.0 and the 4.1 reading reported last month. The measure was at 28.1 in February.
The current conditions reading of -34.8 points was better than the -37.0 forecast but down from the -32.5 last month.
The outlook for the euro area also declined sharply, but the current conditions reading improved, the ZEW said.
The third straight drop in the forward-looking measure for Germany has heightened growth concerns, with ZEW President Achim Wambach rattling off a list of looming issues that include the possibility of a mild German recession, expectations of further interest rate hikes by the ECB, and a potential default by the United States in the coming weeks adding uncertainty to global economic prospects.
May’s third consecutive slide in the view for the coming half year view clashes with the opinions of German managers, who have reported a better outlook for six straight months.
Following the release of the ZEW report, euro strength had the single currency testing 1.09 versus the greenback.
German pollster Sentix said last week that both its measures for the current situation and expectations over the next six months declined, with the latter falling to its lowest level since December.
For Sentix, the culprits were clear. “The negative effects of high inflation and thus dwindling purchasing power are gradually becoming visible in Germany,” with leading retailers that normally present stable growth “now feeling painful declines in sales.”
The ‘R’ word returns
Thomas Gitzel, chief economist at VP Bank, is reviving fears about economic contraction, noting that the latest ZEW reading on the next six months “is now giving a clear message: a recession is imminent.”
He cited worrisome economic reports to support his point. “Most recently, the data on exports, industrial production, and retail sales were a big disappointment.”
Germany produced some dismal economic data in March: exports fell 5.2% on the month, factory orders dropped 10.7%, and retail sales were off 2.4%.
“The ZEW index is definitely one of the worst-performing leading indicators in Germany when it comes to predicting GDP growth," ING noted. "However, it has a decent track record in predicting turning points in the economy. With this in mind, today’s ZEW sends a worrisome message: three consecutive drops are a new trend, a trend in the wrong direction.”
Preliminary data from Germany said its economy flatlined in the first quarter after shrinking 0.4% in the final three months of last year. But the second growth estimate for last quarter due on 25 May could show that the world’s fourth-largest economy was in a technical recession, which is commonly defined as two consecutive quarters of GDP contraction.