The German ZEW Economic Confidence Index, often referred to as the ZEW Index, is a widely recognized economic indicator that measures the sentiment and expectations of financial experts and analysts regarding the German economy. The ZEW Institute, based in Germany, conducts a monthly survey to collect opinions from a panel of around 300 institutional investors and analysts. .
The ZEW Economic Confidence Index is calculated by subtracting the proportion of pessimistic responses from the percentage of optimistic responses. Respondents are asked to assess the current economic situation in Germany as well as provide their forecasts of the economic situation over the next six months.
A positive ZEW reading indicates that the majority of respondents are optimistic about the future economic outlook, indicating expectations of economic growth and improved business conditions. In contrast, a negative reading indicates prevailing pessimism and expectations of economic deterioration.
The ZEW indicator is considered a leading indicator because it aims to capture changes in sentiment and expectations before, they are reflected in actual economic data. It provides insight into the market’s perception of economic prospects and can influence investor sentiment and decision-making.
The ZEW Economic Confidence Index focuses specifically on the German economy, the largest economy in the Eurozone and an important player in the global economy. Changes in the ZEW index can affect financial markets, including stock markets and currency exchange rates.
It is important to note that the ZEW Economic Confidence Index reflects opinions and expectations and not actual economic data. It should therefore be interpreted in conjunction with other economic indicators to form a comprehensive assessment of the economic situation.
Overall, the ZEW Economic Confidence Index is a valuable tool for analysts, investors and policymakers to gauge market sentiment, predict economic trends and assess public confidence in the German economy.
German ZEW March Index: German investor sentiment improves, and interest rate cut expectations
The ZEW Institute for Economic Research said on Tuesday in March that German investor sentiment improved more than expected thanks to expectations of interest rate cuts from the European Central Bank and positive signs from China.
The ZEW Institute announced at the time that its economic sentiment index had risen to 31.7 points from 19.9 points in February. “More than 80% of those surveyed expect the ECB to cut interest rates in the next six months,” said ZEW President Achim Wambach, adding that this could explain the more optimistic outlook for the construction industry.
Germany’s export sector is benefiting from China’s growing economic outlook as well as the expected depreciation of the dollar against the euro, he said.
Data on Monday in March showed that China’s factory output and retail sales exceeded expectations in the January-February period, joining recent better-than-expected exports and consumer inflation indicators that together mark a strong start to the year.
By comparison, the ZEW valuation in March improved only slightly, rising to -80.5 from -81.7 last month (February), surpassing the decline to -82.0 expected by analysts.
The bank’s chief economist said the rise in both figures was positive news for Europe’s largest economy and gave cause for hope for improvement in the summer months. “The German economy is accelerating; we can even call it a spring awakening in the German economy.”
ECB Vice President Luis de Guindos has stated that the bank will be in a position to discuss a rate cut in June as it receives new data on wages, growth and inflation by then.
With this comment, he joins a long list of policymakers who are putting the June 6 meeting on the table as a possible start to monetary policy easing.
ZEW Economic Sentiment Rises in Germany: May 2024 Update
The latest survey for May 2024 reveals a marked rise in the ZEW Economic Confidence Index in Germany, rising to 47.1 points, representing a significant increase of 4.2 points from April. Moreover, the assessment of the economic situation in Germany has seen a significant improvement, with the corresponding index rising by 6.9 points to 72.3 points.
Amid this positive trend, Prof. Achim Wambach, President of ZEW, points to growing confidence supported by the strong performance of the German economy in the first quarter of 2024. This rise in optimism is fueled by promising indicators for the pivotal eurozone and China. Export markets for Germany. It is worth noting that the outlook for domestic consumption, along with the construction and machinery sectors, shows significant increases, reflecting growing optimism. The ZEW Economic Confidence Index is a valuable tool for analysts, investors and policymakers to gauge market sentiment, predict economic trends and assess public confidence in the German economy.
At the same time, financial market experts noted a modest rise in sentiment related to economic development within the Eurozone, with the index rising to 47.0 points, up 3.1 points compared to April. The Eurozone situation index reflects this positive trajectory, seeing a significant rise of 10.2 points to reach a new reading of 38.6 points.
Economists at ZEW said signs of economic recovery are growing, supported by better valuations of the Eurozone and China as a key export market. Increased optimism is particularly reflected in the sharp rise in domestic consumption expectations, followed by the construction and machinery sectors.
The euro jumped in an uncalculated move, while European indices, such as the DE40 for example, fell. However, the size of the moves was rather small and quickly erased.
