The German economy is ailing. The view of financial experts on the economy is darkening. Achim Wambach, President of the economic research institute ZEW. Picture Alliance
The German economy is stuck in recession. The bad news for the economy does not stop.
The ZEW Indicator of Economic Sentiment – an important leading indicator for the next six months – fell in July to its lowest level since the crisis year 2022.
The indicator reflects the expectations of financial experts. They don’t believe the recession will end anytime soon.
Was the decline in economic output in Germany in the winter half-year really just a mild recession? Or will it grow into a real economic crisis? Financial experts in Germany are increasingly agreeing with the second point of view. That’s what they show ZEW Indicator of Economic Sentiment, an important indicator for the development of the economy in the next six months. The index fell from minus 8.5 to minus 14.7 points in July, it said Leibniz Center for European Economic Research (ZEW) on Tuesday with This is the worst reading since December 2022.
The index thus remains deep in negative territory. The assessment of the current situation also fell by three points to minus 59.5 points after a slump in June.
As a leading indicator, the ZEW economic expectations are comparable to the Ifo business expectations. The ZEW regularly surveys around 300 experts at banks and in the finance departments of large companies. So the ZEW indicator measures sentiment, not hard economic data. A value below zero means that the experts mostly expect a decline in economic output.
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“The ZEW economic expectations are shifting even more clearly into negative territory,” commented ZEW President Achim Wambach. “The expected deterioration in the economy is likely to affect the industrial sectors in particular. The earnings expectations of these export-oriented sectors are again falling significantly”.
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Expectations for the economy in the euro zone fell again in July by 2.2 to minus 12.2 points. The situation indicator for the euro zone fell by 2.5 points to minus 44.4 points.
The weak German economy has long been dragging down economic sentiment in the euro area. This is shown by the indicator of the analysis institute Sentix. In July it fell by 5.5 points to minus 22.5 points. The third decline in a row was larger than expected.
The economy in the euro zone remains in recession mode, Sentix commented on the survey results. The situation in Germany, the largest euro-economy, is particularly dramatic. And further: “And improvement does not seem to be in sight.”
The German economy had already shrunk in the winter half-year and had thus developed worse than the other large national economies in the currency area. The Federal Statistical Office will present the first figures for economic growth in the second quarter of 2023 on July 31.
The poor economic development is also putting pressure on the European Central Bank. ZEW President Hambach commented on the gloomy prospects: “A key reason for this is the expectation that short-term interest rates will continue to rise in the euro area and in the USA.” to raise key interest rates again in July. The economist Achim Truger, a member of the Advisory Council of the Five Economic Wise Men, had recently pleaded for an interest rate pause – with reference to the significantly poorer prospects for the economy in the euro zone.
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