Germany: ZEW indicator signals growth will settle at lower level – ABN AMRO

Aline Schuiling, senior economist at ABN AMRO, notes that Germany’s ZEW economic sentiment indicator improved noticeably in December as the expectation indicator jumped to -17.5, up from -24.1 in November, but remained well below its long-term average value of +22.5.

Key Quotes

“The expectations indicator tends to signal swings in Germany’s GDP growth relatively well, with a lead of around one to two quarters. Besides the expectations indicator, the ZEW survey also gauges current economic conditions. This current conditions indicator tends to track changes in GDP growth with a lag of around one to two quarters. The current conditions indicator dropped sharply in the final two months of the year, to 45.3 in December, down from 70.1 in October, which seems to reflect that GDP dropped in Q3 (to -0.2% qoq, down from +0.5% in Q2).”

“Looking forward, the expectations component of the ZEW survey has risen somewhat on balance since July. This signals that growth picked up again after the exceptionally weak Q3, when temporary problems in the car industry weighed on economic growth.”

“Still, the ZEW expectations indicator ended the year at a much lower level than it started the year (it dropped by around 38 points). This indicates that, barring the problems in the car sector, GDP growth in Germany has lost some momentum and that growth will remain below the levels of the first half of 2018 (of around 0.4-0.5% qoq) in the coming quarters.”