The sentiment for current economic conditions in Germany fell to a four-year low, although January analysts have determined that the overall index reading is less negative than initially expected, actually marking a slight improvement over the previous month according to the results of the ZEW survey.
Key Takeaways
- Economic sentiment came in at -15.0 vs the -17.5 the month before and -18.4 expected this month, marking a small improvement in what is still a negative reading.
- Within the index, the current conditions dropped 26.7 from 45.3 last month, which also saw a major slump in that indicator, making it the lowest reading since January 2015.
- As the biggest eurozone economy, the ZEW is viewed as one of the indicators of the overall health of the EU economy to an extent.
The ZEW surveys around 300 analysts from German banks, insurers, and large industrial group, and the slight improvement to a reading of -17.5 is still very far below the long-term average of 22.4. The survey found that sentiment on the economic development of the eurozone edged up 0.1 points to -20.9.
The German GDP dropped 0.2% in Q3, double the expected rate of decline, with a recent ZEW report stating that Germans do not foresee a speedy economic recovery due largely to the decline in the auto industry led by the VW emissions scandal which has initiated testing that has significantly disrupted automobile production.
The embattled Eurozone economy has shown signs of instability in the markets, with the euro dropping towards support levels while trading against the USD recently. However, the slight increase in sentiment is a positive sign and may help offset further decline in the value of the euro.
German ZEW current conditions index declined sharply in January, while expectations improved slightly from a low level. "Current conditions" has a much stronger correlation with actual GDP growth than expectations. More economic weakness ahead #germany #macrobond pic.twitter.com/x6tqK10tHb
— Ulrik Harald Bie (@UlrikBie) January 22, 2019
Expert Outlook
“It is remarkable that the ZEW economic sentiment for Germany has not deteriorated further given the large number of global economic risks,” said ZEW president Achim Wambach.
“The financial market experts have already considerably lowered their expectations for economic growth in the past few months.”
“New, potentially negative factors, such as the rejection of the Brexit deal by the British House of Commons and the relatively weak growth in China in the last quarter of 2018, have thus already been anticipated,” he added.
Market Reaction
The gold market saw little immediate reaction to the news, ticking downwards before recovering near session highs, now trading up 0.16% at $1,283.41/oz with a low of $1,277.42/oz and a high of $1,284.78/oz. The EUR continues to trade at 1.13 to the USD.
Gold Price Chart
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