Storm clouds may be forming over Germany, according to the latest ZEW Indicator of Economic Sentiment.
The indicator, which measures the confidence that the public has in the country’s economic state, saw a steep decline this month, falling precipitously to 19.2 points, 22.6 points below its July value.
ZEW, also known as the Leibniz Centre for European Economic Research, said that the last time expectations decreased so dramatically was a little over two years ago in July 2022. It added that the assessment of the current economic situation in Germany also declined. The corresponding indicator fell by 8.4 points to a new value of minus 77.3 points.
Professor Achim Wambach, president of ZEW, said: “The economic outlook for Germany is breaking down. In the current survey, we observe the strongest decline of the economic expectations over the past two years. Economic expectations for the eurozone, the US, and China also deteriorate markedly.”
He added: “As a result, especially the expectations for export-intensive German sectors decline. 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.”
In fact, the results of the Indicator since 1991 depict that this decline—while steep—saw longer, harder falls around March 2022. In fact, steep falls have been a regular feature of the index over the last thirty-three years.
However, the German economic picture is not so rosy. Inflation rose again in July to 2.3% after falling to 2.2%. At the same time, the number of people unemployed rose by 82,100 in July. The country also has a rapidly ageing population and was caught off guard by issues with fuel supply over the winter.
Across Europe, the picture given by the Indicator was equally grim. At 17.9 points, the financial market experts’ sentiment concerning the economic development of the euro area lost 25.8 points compared to July. The last time the indicator experienced a steeper decline was April 2020. In contrast, the situation indicator for the eurozone improved marginally, climbing 3.7 points to a new reading of minus 32.4 points.
