Germany Expectations Current Conditions
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January -21.6 +28.4

MNI survey median: -50.0 +24.4
MNI survey range: -56.0 to -40.0 +23.0 to +28.0

December -53.8 +26.8
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FRANKFURT (MNI) – Investor sentiment regarding Germany’s short-term
economic outlook brightened in January far more than even the most
optimistic forecasts had foreseen, while views on the current situation
saw a modest but unexpected recovery, the Centre for Economic Research
(ZEW) reported on Tuesday.

Building on December’s surprise recovery, the ZEW’s expectations
indicator rose further in January to -21.6, its highest level since
July, after -53.8 in December.

While the indicator remains below the long-term average of +24.5,
the improvement “suggests that within the next six months German
economic activity is likely to stabilize instead of deteriorating
further,” the ZEW said in a press release.

“Contrary to repeatedly expressed fears of a recession, the
assessment of the financial market experts gives reason for cautious
optimism that Germany will only experience a dent in economic activity,”
ZEW President Wolfgang Franz said. “The generous supply of liquidity by
the ECB and the relatively affordable refinancing terms for Italy and
Spain may have supported the improvement of this month’s sentiment.”

“Nonetheless, the further development of the debt crisis remains a
risk to economic growth,” Franz warned.

The current conditions component surprised to the upside, rising to
+28.4 in December. A majority of analysts had expected a further
deterioration of that figure.

Earlier this month, the Federal Statistical Office reported that
the German economy expanded by a healthy 3.0% over the course of 2011,
while employment grew by 1.3% to a record high of 41.041 million.

However, it was not all good news. The FSO estimated that activity
contracted by around 0.25% over the last three months of 2011. Export
growth is likely to slow as major trading partners suffer through a
recession, creating a further drag in the months ahead.

Manufacturers polled in December’s PMI survey reported a marked
contraction in demand from abroad, which contributed to the downward
trend of total orders.

Still, firms’ assessment of order books remained well above average
in December, a European Commission survey showed, suggesting that a
comfortable cushion of back orders still exists.

For the Eurozone as a whole, economic sentiment improved to -32.5,
while the current conditions sub-indicator slipped to -51.8.

Hinting at an improvement in Eurozone prospects, the Sentix
investor confidence indicator surprised to the upside in January, as
less gloomy expectations offset a further erosion in current conditions.

Eurozone GDP growth slowed to 0.1% in 3Q, the slowest pace since
early 2009, and it probably slipped into negative territory in 4Q, as
austerity measures cut into domestic demand and slowing global trade
weighed on exports.

European Central Bank President Mario Draghi warned last week of
“substantial downside risks” to the Eurozone’s economic outlook.

“At the same time, we continue to expect euro area economic
activity to recover, albeit very gradually, in the course of 2012,
supported by developments in global demand, very low short-term interest
rates and all the measures taken to support the functioning of the
financial sector,” Draghi added.

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

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