The economic situation in Germany is bleak, hopes rest on an interest rate cut by the European Central Bank (ECB). Picture Alliance
The economy in Germany is close to its lowest point, and improvement is in sight: This is what the new ZEW economic expectations suggest, an important leading indicator for the German economy.
The assessment of the situation fell again – to the worst value since June 2020. In contrast, the outlook for the next six months brightened significantly.
The financial experts surveyed are particularly hopeful that the European Central Bank will soon begin lowering key interest rates.
The economy in Germany has only known one direction for months: downwards. Economic output has been falling since autumn. Most economists also expect a decline in gross domestic product (GDP) for the first quarter of 2024. But that should be the lowest point, if you follow them âZEW-Konjunkturerwartungenâa highly regarded leading indicator of economic development in the next six months.
The assessment of the current economic situation deteriorated again. It fell by 4.4 points to minus 81.7 points in February. This is actually the lowest value since June 2020, when the Corona crisis depressed the mood. In contrast, expectations rose again in February. At 19.9 points, they are 4.7 points above January and clearly in positive territory. The index is based on a survey of financial experts in Germany.
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“The German economy is not doing well,” commented ZEW President Achim Wambach. He explains the better expectations by saying “more than two thirds of those surveyed assume that the ECB will cut interest rates in the next six months in view of falling inflation rates”. Lower interest rates make it easier to finance investments and also make consumption more attractive than saving more. Impulses for the economy could also come from the USA. “Almost three quarters of those surveyed now expect the American Federal Reserve to cut interest rates soon,” said Wambach.
Also the expectations of financial market experts for the economy in the Eurozone have improved. The index rose by 2.3 to 22.5 points. For the euro zone, the assessment of the situation also improved by 5.9 points to, however, still minus 53.4 points.
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Bantleon analyst Jörg Angelé called the improvement in ZEW economic expectations “weak” given the low level. The result of the ZEW survey in February is consistent with his assumption of a further decline in GDP in the current quarter. “In our opinion, given the variety of negative factors, there is hardly any reason to assume that there will be any significant economic recovery in the near future,” he commented. “In addition to the global economic slowdown we expect, the massive rise in interest rates in the Eurozone is having a dampening effect. The latter is likely to be reflected in a significant decline in construction investments.“
Housing construction economy at historic low
The German economy continues to be held back by the catastrophic situation in housing construction. He is particularly affected by the high interest rates. The Ifo business climate in residential construction fell to its lowest value ever measured. The index fell from minus 56.9 to minus 59.0 points in January. Expectations have slipped further to minus 68.9 points: “The outlook for the coming months is bleak,” said Ifo economist Klaus Wohlrabe.
There were no new orders for residential construction. At the same time, projects that had already been planned would be canceled. More than half of the companies surveyed complained about a lack of orders. There was at least a decrease in cancellations. However, it was said that there was no sign of a trend reversal yet. The difficult general conditions – increased interest rates and construction costs – have hardly changed
The Ifo Institute expects that only around 225,000 apartments will be completed this year – after an estimated 270,000 last year. The federal government is a long way from its goal of 400,000 new apartments every year. The lack of housing, particularly in the cities, despite high demand, has recently caused rents to rise sharply.
With material from dpa
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