German economic expectations improve slightly

December 9, 2008 7:06:17 AM PST
German economic expectations improved in December as a result of interest rate cuts and state action to combat the economic slowdown. But a closely watched survey shows confidence remains well below its historical average. The ZEW Indicator for Economic Sentiment for Germany rose in December by 8.3 points to minus 45.2 points, bringing it back to levels seen in September and October. That is still way below the survey's historical average of a positive 26.8 points, ZEW spokeswoman Sandra Schmidt said Tuesday.

The lowest point of the survey was in July 2008 at minus 63.9 points, the weakest in 16 years.

The Mannheim-based ZEW, or Center for European Economic Research, said Tuesday factors including a further interest rate cut from the European Central Bank earlier this month had contributed to the rise in the indicator from the month-ago reading of minus 53.5 points.

The improvement signaled that worries about a further aggravation of the recession in the middle of 2009 seem to be limited, but that the case remained for further caution, the ZEW said.

"The German economy is slipping deeper into the recession," ZEW President Wolfgang Franz said in a statement. "There is great uncertainty about the pattern of the business cycle in the next year."

Franz said survey respondents anticipate a similar economic landscape in the first half of next year and that the German government would be "well advised" to launch a growth package that would include infrastructure projects.

Earlier this week, President-elect Barack Obama called for the largest U.S. public works program since the creation of the interstate highway system a half-century ago. The pledge was cheered by Wall Street Monday, with the Dow Jones industrials rising to the highest level in a month.

But the ZEW's assessment of the current economic situation in Germany further worsened in December, the group said. That indicator dropped 14.1 points to minus 64.5 points from minus 50.4 points a month ago.

The economic expectations for the euro zone improved by 7.9 points and now stands at minus 46.1 points. The indicator for the current economic situation in the euro zone worsened, however, dropping 12.3 points from November to minus 71.2 points in December.

"The marked rise in the ZEW cannot hide the fact that the outlook of financial market experts on the economy definitely remains depressed," UniCredit analyst Alexander Koch said in a research note.

"The drivers behind the recovery in December should have been the continuing downward trend in energy prices and the increasing likelihood of massive fiscal stimulus packages around the globe. But apart from this, the economic fundamentals for the export world champion (Germany), have deteriorated further," Koch said.

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