Investor morale jumps in Germany despite price pressures

Investor confidence in Germany has surged, a closely-watched survey showed on Tuesday, beating expectations.

The November ZEW Indicator of Economic Sentiment came in at 31.7, a 9.4-point jump on October’s reading and the first time since May it has risen.

The reading also confounded consensus, with most economists predicting a fall to 20.0.

Mirroring the Sentix Economic Index published on Monday, ZEW's assessment of the current situation in Germany worsened, falling by 9.1 points to 12.5. But the analysts and other financial market specialists surveyed were considerably more optimistic looking forward.

Achim Wambach, ZEW president, said: "The renewed decline in the assessment for the [current] economic situation shows that the experts assume that the supply bottlenecks for raw materials and intermediate products, as well the high inflation rate, will have a negative impact on the economic development in the current quarter."

But he added: "For the first quarter of 2002, they expect growth to pick up again and inflation to fall both in Germany and the Eurozone."

The November Sentix Eurozone Economic Index, which surveys investors, rose to 18.3, after the current situation index eased to 23.5 but the expectations index jumped to 13.3.

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said: "Current conditions continued to deteriorate, as analysts agreed with us that German GDP growth is now slowing sharply. But a jump in the expectations index suggest that most analysts think that the slowdown will be temporary, and that economic growth will rebound come the first quarter of 2022.

"It’s difficult to see where this optimism is coming from, but it probably reflects assumptions that supply side pressures will have eased by them.

"Overall, the increase in expectations is a positive sign, hinting that downside risks are now stabilising. But we need more evidence, primary form the economic surveys, to change our view that near-term growth is now slowing a bit quicker than the consensus expects."

The survey also found that sentiment towards the economic development of the Eurozone had risen for the first time since May, up 4.9 points at 25.9. Inflation expectations for the Eurozone declined "very sharply", ZEW noted, with the indicator now standing at -14.3.