A positive surprise from today’s ZEW survey
Just as everyone is worried that the sovereign debt crisis is about to send the Euro area into a deep recession, the German ZEW (Zentrum für Europäische Wirtschaftsforschung) index for January has delivered a big, positive surprise today.
The ZEW survey, which is conducted among analysts in the financial sector, posted a big rise in the expectations index from -53.8 in December to -21,6 in January – which is far above the expectations for only a modest improvement.
Meanwhile the current conditions index also surprised on the upside with a rise from 26.8 to 28.4 – slightly above expectations.
Less pessimistic outlook
Today’s ZEW index indicates that financial analysts are getting less pessimistic about the outlook for the German economy. This is well in line with our expectation, where we expect the Euro area to return to positive albeit modest growth during the second quarter – with the German economy as one of the strongest performers. Thus, the export oriented German economy already seems to be benefiting from the gradual recovery in the global economy, even though several of the debt-ridden Euro area member states are in deep recession.
Even so, we expect German economic activity to contract in the first three months of 2012 following an estimated 0.2 % decline in the last three months of 2011. For 2012 as a whole, we expect 0.6 % growth in the German economy.
Still plenty of event risk
The immediate reaction to the positive surprise in the ZEW was a rise in the EUR and German yields also moved higher. However, in the medium to long term, we still see plenty of event risk in the Euro area, which should help to push the EUR lower. This week could already be quite hair raising, as the negotiations over a restructuring of outstanding Greek government bonds are slowly grinding on – threatening to derail the plan for a new official lending package before a crucial redemption of a bond worth EUR 15 bn on March 20.
Anders Matzen
Chief Analyst
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