German sentiment jumps despite economic gloom - ZEW

Economic sentiment strengthened in Germany this month, a closely-watched survey showed on Tuesday, despite the country’s economy continuing to struggle.

The latest ZEW indicator of economic sentiment improved 4.7 points in February to 19.9, the seventh consecutive month of increases.

This was despite the indicator of the current economic situation shedding 4.4 points to -81.7, the lowest since June 2020, at the start of the pandemic.

Europe’s largest economy saw output contract 0.3% last year, after it was hit hard by high inflation, increased interest rates and elevated energy costs.

However, most economists expect consumer spending to pick up this year as household finances are bolstered by growing wages and slower rates of inflation.

Achim Wambach, president of ZEW, said: "The German economy is in a bad place. The assessment of the current situation has deteriorated.

"In contrast, economic expectations have improved again. Accordingly, more than two-thirds of the respondents expect the European Central Bank to make interest rate cuts over the next six months in light of falling inflation rats.

"Almost three-quarters of respondents expect imminent interest rate cuts by the American central bank."

Carsten Brzeski, global head of macro at ING, said: "Financial analysts see light at the end of the tunnel, even though that tunnel seems to be never-ending.

"It is the nature of the ZEW index that a weakening current assessment component almost automatically increases expectations: the further you fall, the easier it is to rebound at some point.

"Today’s numbers very tentatively signal better times ahead. At the same time, however, any cyclical improvement of the Germany economy will be too weak to offset structural weaknesses. The index does little to change the base case scenario of yet another year of recession in Germany."

A total of 167 analysts participated the survey, which was conducted between 5 and 12 February.