Expectations Current Conditions
————————————————————-
February +15.7 +85.2

MNI survey median: +20.0 +83.5
MNI survey range: +16.0 to +24.0 +82.0 to +85.7

January +15.4 +82.8
—

FRANKFURT (MNI) – Investors’ outlook for the German economy
continued to brighten in February, though by less than expected, while
their view of the current situation reached a new all-time high, the
Centre for European Economic Research (ZEW) reported on Tuesday.

Extending its run of consecutive increases to four months, ZEW’s
expectations index rose 0.3 point to +15.7, its highest level since
July. However, even the most pessimistic analysts had expected a
stronger rise.

“The almost unaltered level of the indicator suggest that financial
market experts have remained confident about the recovery of the German
economy,” ZEW said in a press release. “It has certainly added to the
confidence of the experts that the degree of capacity utilisation of
German enterprises has increased above its ten-year historical mean.”

The current conditions component rose 2.4 points to a record high
of 85.2.

The results suggest that economic growth should pick up in the
months ahead. Due in part to harsh weather conditions last winter, GDP
growth slowed to 0.4% in 4Q, undershooting the Federal Statistical
Office’s initial estimate as well as most forecasts.

Nevertheless, Germany remains the poster child for the Eurozone.
Both foreign and domestic demand contributed to GDP growth last quarter,
the statistics office noted, while the country’s labour market is the
envy of the monetary union.

In January, the jobless rate fell to its lowest level since 1992
and could ease further, according to indicators, including the Ifo
institute’s recent Employment Barometer and Markit’s PMI figures.

Last week, the German Chamber of Industry and Trade (DIHK) hiked
its forecast for GDP growth this year to 3.0% from 2.4% and expects the
economy to reach its pre-crisis level “early on in 2011,” DIHK chief
economist Volker Treier said.

Economics Minister Rainer Bruederle was also optimistic regarding
the economy, saying that economic growth may top the government’s +2.3%
upwardly revised forecast. “The upswing is not a short story; it is a
serial,” he said.

Last week, outgoing Bundesbank head Axel Weber said that the
pre-crisis level should be reached at the earliest at the end of the
year.

For the Eurozone as a whole, the ZEW’s economic expectations
indicator increased by 4.1 points to +29.5, while its current conditions
indicator jumped by over 12 points to +6.1.

Earlier this month, the Sentix Eurozone investors confidence index
surprised to the upside, topping three-year highs as both the current
situation and expectations components strengthened.

Addressing journalists following the publication, ZEW expert
Michael Schroeder stressed that, while there was little change in the
headline number, “below the surface a lot has changed.”

Schroeder said that external risks had “diminished significantly”
due to the improvements in the current situation in both the U.S. and
the Eurozone: “There are no longer really significant risk for the
German business cycle.”

While the sovereign credit crisis remains acute in Greece, it is no
longer viewed as a risk to the Eurozone’s business cycle, Schroeder
added.

However, Schroeder also noted that many in the U.S. and the
Eurozone expect a strong rise in inflation over the coming six months.
Still, inflation is likely to remain within a modest range, the expert
added.

Regarding monetary policy, Schroeder said that about 65% of
respondents expected the European Central Bank to tighten rates over the
next half year. The figure was 14% higher than last month, “which
usually translates one-to-one with ECB benchmark rate rise increases,”
he said.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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