German ZEW beats forecasts in December but still depressed

German economic sentiment unexpectedly improved in December, but remained depressed, according to the latest survey from the ZEW Center for European Economic Research in Mannheim.

The economic sentiment indicator rose to -17.5 from -24.1 in November, beating expectations for a slide to -25.0. Still, it remained in negative territory and below the long-term average of 22.5.

Meanwhile, the current situation index plunged to 45.3 this month from 58.2 in November, missing expectations for a reading of 55.0.

Achim Wambach, President of ZEW, said: "Although the rise in economic expectations is a welcome one, it should not be over-interpreted. The assessment of the economic situation has worsened dramatically for both Germany and the Eurozone. This is indicative of relatively weak economic growth in the fourth quarter.

"In addition, uncertainties also remain in terms of the looming international trade dispute and Brexit, which have a particularly negative impact on private investment and Germany’s exports."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the crash in the current situation index looks ugly, "but we are inclined to ignore this given the rise in expectations".

"Normally, increasing expectations relative to the current situation index is a positive sign in these data. Across the main themes, the stand-out detail is the plunge in analysts’ inflation expectations, likely reflecting the recent plunge in oil prices. Probably as a result, short- and long-term interest rate expectations also slipped," Vistesen said.

"Analysts’ expectations for equity markets rose across the board, though, indicating that market participants are warming to the idea that anything but an imminent recession, or other calamities, are now priced-in."