FRANKFURT – German financial market experts warned of trouble ahead for Europe’s largest economy as domestic and international issues both political and economic continued to intensify.
The ZEW economic thinktank said Tuesday that its August expectations indicator for the next six months plummeted to 19.2 points, drastically undershooting the market estimate of 34.0 and last month’s 41.8 result. Last month’s drop was already the first in a year, and this month’s poor showing was the worst since January, with the ZEW noting that the size of the decline was the largest since April 2020, when the pandemic was just taking hold.
The current conditions reading slid to -77.3 points – a four-month low – to fall short of the -74.5 estimate and the -68.9 reading recorded last month.
The expectations measure for the Eurozone tumbled to 17.9 points from 43.7.
EUR/USD remained above 1.09 and creeped higher on the news. The Dax 40 index of German blue chips fell initially before rebounding above pre-release levels.
Future darkens
“The economic outlook for Germany is breaking down,” said ZEW President Professor Achim Wambach. “It is likely that economic expectations are still affected by high uncertainty, which is driven by ambiguous monetary policy, disappointing business data from the US economy, and growing concerns over an escalation of the conflict in the Middle East. Most recently, this uncertainty expressed itself in a turmoil on international stock markets.”
This month’s grim results are expected to spur central bank action, according to Alexander Valentin at Oxford Economics. “Given today's inauspicious reading of the ZEW index, we see further arguments for an ECB rate cut in September followed by another cut at the end of the year. A faltering growth outlook paired with industrial weakness that has also started to feed through into the labour market will make it harder for the ECB council to maintain its hawkish bias.”
Valentin noted that the ZEW results were just the latest in a long line of negative indicators.
Last week, German pollster Sentix said its August expectations component for Europe’s largest economy was the worst since October of last year. Furthermore, it noted: “At -42.8 points, current assessments have fallen by a whopping 10.5 points and are thus at their lowest level since June 2020. We are talking about comparative values from the peak phase of the coronavirus pandemic and lockdowns!”
Skittish global stock and bond markets offer little succour for those seeking calm, and ongoing conflicts involving a range of players to include Israel, Iran, Russia, and Ukraine are rattling economies well beyond the areas of conflict.
And finally, looking back, the German economy contracted at a quarterly rate of 0.1% in the second quarter
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- Two straight declines wipe out most 2024's gains
- “Ambiguous” monpol undercuts confidence
- “Uncertainty expressed” in market “turmoil”
- Economic outlook “breaking down”
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
13 August 2024 | 09:50 GMT
FRANKFURT – German financial market experts warned of trouble ahead for Europe’s largest economy as domestic and international issues both political and economic continued to intensify.
The ZEW economic thinktank said Tuesday that its August expectations indicator for the next six months plummeted to 19.2 points, drastically undershooting the market estimate of 34.0 and last month’s 41.8 result. Last month’s drop was already the first in a year, and this month’s poor showing was the worst since January, with the ZEW noting that the size of the decline was the largest since April 2020, when the pandemic was just taking hold.
The current conditions reading slid to -77.3 points – a four-month low – to fall short of the -74.5 estimate and the -68.9 reading recorded last month.
The expectations measure for the Eurozone tumbled to 17.9 points from 43.7.
EUR/USD remained above 1.09 and creeped higher on the news. The Dax 40 index of German blue chips fell initially before rebounding above pre-release levels.
Future darkens
“The economic outlook for Germany is breaking down,” said ZEW President Professor Achim Wambach. “It is likely that economic expectations are still affected by high uncertainty, which is driven by ambiguous monetary policy, disappointing business data from the US economy, and growing concerns over an escalation of the conflict in the Middle East. Most recently, this uncertainty expressed itself in a turmoil on international stock markets.”
This month’s grim results are expected to spur central bank action, according to Alexander Valentin at Oxford Economics. “Given today's inauspicious reading of the ZEW index, we see further arguments for an ECB rate cut in September followed by another cut at the end of the year. A faltering growth outlook paired with industrial weakness that has also started to feed through into the labour market will make it harder for the ECB council to maintain its hawkish bias.”
Valentin noted that the ZEW results were just the latest in a long line of negative indicators.
Last week, German pollster Sentix said its August expectations component for Europe’s largest economy was the worst since October of last year. Furthermore, it noted: “At -42.8 points, current assessments have fallen by a whopping 10.5 points and are thus at their lowest level since June 2020. We are talking about comparative values from the peak phase of the coronavirus pandemic and lockdowns!”
The most recent Ifo poll of German managers showed a third straight decline in confidence, and unexpected increases in German and Eurozone inflation last month are likely to sour the mood among investors. Purchasing managers have also reduced their optimism for Germany.
Skittish global stock and bond markets offer little succour for those seeking calm, and ongoing conflicts involving a range of players to include Israel, Iran, Russia, and Ukraine are rattling economies well beyond the areas of conflict.
And finally, looking back, the German economy contracted at a quarterly rate of 0.1% in the second quarter
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