ZEW index rises sharply
“The bottom has been reached”
October 17, 2023, 2:56 p.m
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Optimism is growing: analysts are much more positive than recently about the economy in the next six months. The assumption that inflation will continue to fall and the hope that interest rate hikes will end are contributing significantly to this. The Middle East conflict is currently of little concern to stock market investors.
Stock market professionals rate the prospects for the German economy in October as better than they have been for six months, despite new risks from the escalation in the Middle East. “The bottom has been reached,” said ZEW President Achim Wambach, commenting on the development. “However, negative factors such as the Israel conflict, which individual respondents cited as the reason for their downwardly revised growth forecast, did not have a strong influence on the overall more optimistic outlook.”
The barometer for assessing the economy in the next six months rose for the third month in a row – by a surprisingly strong 10.3 points to minus 1.1 points, according to the Mannheim Center for European Economic Research (ZEW) in its survey of 164 analysts and investors announced. Economists had only expected an increase to minus 9.3 points. At the same time, the assessment of the current situation is stabilizing: this barometer fell by 0.5 points to minus 79.9 points.
The improved economic outlook was accompanied by the expectation of further falling inflation rates and the fact that more than three quarters of those surveyed now expect stable short-term interest rates in the euro area. Higher interest rates are seen as poison for the economy and stock markets. “A possible interest rate peak in the euro area is now fueling hopes that the economic weakness will end at the turn of the year,” said DZ Bank economic analyst Christoph Swonke.
Helaba economist Ralf Runde considers it remarkable that the prospects are rated better – “even though the escalation of violence in the Middle East has added a not insignificant risk factor.” He continued: “The rise in oil prices is still limited, so the economic burden is moderate.”
However, other banking economists do not yet see an economic trend turning for the better. “The mood has not escaped its state of shock,” said the chief economist at Hauck Aufhäuser Lamp Privatbank, Alexander Krüger. “Above all, the assessment of the situation shows how bad the location is.” The economy is firmly on the path to recession.
The federal government assumes that Europe’s largest economy will gradually regain its footing. Accordingly, gross domestic product is expected to shrink by 0.4 percent this year. In the spring an increase of 0.4 percent was estimated. In 2024 and 2025 there should be growth rates of 1.3 and 1.5 percent again.