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The ZEW Indicator of Economic Sentiment in Germany increased slightly by 0.6 points this month and remains at the negative side of the spectrum with a reading of -24.1, a far cry from the long-term average of 22.7 points.

This follows a huge, unexpected drop of 14 points in October that was likely the result of a culmination  of concerns over the ongoing trade war between China and the US as well as the Brexit situation which will be sure to impact Germany and the EU - the drop in investor outlook shows that the potential nature of the impact remains very unclear. There was little reaction in the gold market with spot gold trading at $1,201.90/oz at the moment, up 0.05% on the day.

Key Takeaways

The gauge for the euro-area economy dropped

• According to ZEW President Achim Wambach, survey participants don’t expect to see a speedy recovery of the currently weak development of the economy
• The current economic assessment of the situation in Germany fell 11.9 points to 58.2
• ECB Chief Economist states that domestic demand is holding firm
• The indicator for the current economic situation in the Eurozone dropped by 13.8 points to 18.2.
• Market expert sentiment regarding Eurozine development fell 2.6 points to -22.0.

Germany’s DAX Index has fallen 14% since May with a consistent 3-month decline, but showing little change so far this month. The first reading of the GDP is due Wednesday with some economists predicting the first contraction in four years.

Germany is a regional economic powerhouse accounting for almost one third of the entire eurozone economy, making it an influential player in regional and world economics. EU growth has slowed to 0.2% in Q3 2018, a four-year low.

Auto production has been impacted by new emissions-test procedures as well as the trade tensions and related tariffs, all of which has led to a decline in sales. A prolonged slowdown would be problematic for the ECB plans to transition away from purchasing bonds to stimulate growth by the end of the year. While officials such as ECB President Mario Draghi still claim that the regional growth outlook is positive, the rising external risks are also noted.

Expert Outlook

Expectations for the German economy are dampening above all due to the intensifying trade dispute between the U.S. and China, Achim Wambach, president of the ZEW Center for European Economic Research, said in a statement last month. “A further negative influence on economic and export expectations is the danger of a ‘hard Brexit’, which is becoming ever more likely. Last but not least, the situation of the governing coalition in Berlin is perceived to have become more unstable.”

ZEW President Achim Wambach stated today: “The figures for industrial production, retail sales and foreign trade in Germany all point towards a weak development of the German economy in the third quarter. This is reflected by the fact that the assessment of the current situation has experienced a decline. The expectations of the survey participants for the coming six months do not show any improvement. This means that, at the moment, they do not expect to see a speedy recovery of the currently weak development of the economy.”