Germany Expectations Current Conditions
——————————————————————
June: +28.7 -7.9
MNI survey median: +42.8 -15.0
MNI survey range: +35.8 to +50.0 -20.0 to -10.0
May: +45.8 -21.6
—
MANNHEIM, Germany (MNI) – Investors’ and market participants’
six-month outlook for Germany declined much more than expected in June
as concerns over the sovereign debt crisis undermined confidence, the
ZEW survey showed.
The expectations index fell 17.1 points to 28.7, undershooting the
forecast survey median of 42.8 and remaining only slightly above the
index’s long-term average of 27.4.
“Thus, the financial market experts expect the German economic
recovery that can be observed in the second quarter 2010 to weaken
towards the end of this year,” ZEW said in a statement.
“The economic sentiment is weakened by the uncertainty about the
future developments of the debt crisis and the perspective of necessary
cuts in public expenditure in EU-member countries,” it added.
Despite the sharper than expected drop, the economic outlook still
remains positive, ZEW noted.
“The current recovery is still fragile,” argued ZEW President
Wolfgang Franz. “Fiscal policy is therefore well advised to define
necessary consolidation measures now, but to implement them not until
2011.”
The index for current conditions in Germany recovered another 13.7
points to -7.9. In contrast to expectations, the current condition
reading was much better than most analysts’ forecasts.
The fresh decline in expectations stands in contrast to the
Bundesbank’s upwardly revised GDP forecasts for both 2010 and 2011. The
German central bank raised growth projections to 1.9% from 1.6% for 2010
and to 1.4% from 1.2% for 2011.
In the short term, exports and the inventory cycle will continue to
support overall growth, while the importance of government stabilization
measures in the economy are expected to wane, the Bundesbank said.
Looking further ahead, both business investment and private consumption
are projected to rise, it added.
However, the central bank warned that its projections are based on
the assumption that the current fiscal crisis would have limited impact
on confidence, which in turn would depend on credible actions taken to
“achieve sustained fiscal consolidation.”
As regards financial markets this assumption appears optimistic in
the short term and should explain the more cautious assessment of
financial market players.
Mounting concerns over banks’ exposure to government bonds in the
shaky periphery countries have impaired interbank lending again. Instead
of lending to each other, banks parked record high sums at the European
Central Bank’s overnight deposit facility last week.
A report from the Bank of International Settlements published
Monday showing that German banks had lent $465 billion to Spain, Greece,
Portugal and Ireland by the end of 2009, making the German banking
system the second most exposed after France, may have further raised
concerns among survey participants.
Other survey results, for instance from the European Commission,
showed that economic morale in May deteriorated, as the sovereign debt
crisis and the intensification of austerity programs in many Eurozone
countries sparked concerns over medium-term growth prospects.
In the near term, trends in investors’ outlook will largely depend
on return of confidence, in particular in the banking sector.
The ZEW’s economic expectations for the euro zone declined by 18.8
points in June. The respective indicator now stands at 18.8. The
indicator for the current economic situation in the euro zone improved
by 7.7 points and now stands at -40.8.
ZEW said 279 analysts and institutional investors participated in
its survey conducted from May 31 to June 14.
–Frankfurt bureau tel.: +49 69 720 142. Email: frankfurt@marketnews.com
[TOPICS: M$G$$$,MT$$$$,M$X$$$,M$XDS$,MAGDS$]
