Germany, eurozone sentiment improves on US-China trade truce - ZEW

Author: Jonathan Lopez

2020/01/21

LONDON (ICIS)--Germany’s economy started 2020 on a positive note as fears of trade disputes receded after the US and China agreed a trade truce, financial analysts cited by the research institute Zew said on Tuesday.

Prospects for the German chemicals industry - the largest in Europe with annual sales of nearly €200bn - also improved in January as the outlook for chemical-intensive industries such as automobiles and construction took a turn for the better.

The ZEW indicator for economic sentiment in the coming months rose in January to 26.7 points - 16 points up from December - and its highest level since July 2015.

The ZEW assessment of the current economic situation in Germany also registered a strong rise in January, at minus 9.5 points, 10.4 points higher than in December.

Nonetheless, growth in Europe's largest economy is expected to remain below average this year.

Germany is a key exports-based economy and last year's US-China trade war had a big impact on its overseas markets.

“This [US-China trade deal] gives rise to the hope that the trade dispute’s negative effects on the German economy will be less pronounced than previously thought,” said ZEW president Achim Wambach.

“In addition, the German economy developed slightly better than expected in the previous year. Although the outlook has improved, growth is still expected to remain below average.”

EUROZONE IMPROVEMENT
The uptick in German sentiment was also mirrored in the wider 19-country eurozone, with the indicator at 25.6 points in January, up 14.4 points from December.

The indicator for the current economic situation in the eurozone also rose - by 4.8 points - climbing to its current reading of minus 9.9 points.

THREATS REMAIN
It is not all good news, however. Analysts at UK-based Oxford Economics said that optimism seen in the latest reading of the ZEW index is mostly due to fewer risks in the global economy rather than sustainable growth prospects.

Economic growth is expected to remain weak this year and a potential manufacturing recovery will be capped by timid global trade and a still high level of uncertainty. In the meantime, fiscal policy support is forecast to remain insufficient, according to Oxford Economics’ eurozone analyst Daniela Ordonez.

“The brighter picture reflects unwinding of major external risks rather than a substantive strengthening in economic prospects... The skies have not cleared completely, however,” said Ordonez.

“The re-emergence of trade tensions cannot be ruled out; there is still an important risk of new trade frictions between the UK and the EU, and a potential rise in oil prices amid US-Iran tensions or the Libya conflict is a fresh threat to the outlook.”

Click here for a detailed table with for all industries and main world economies compiled by Zew.

Front page picture: The European Central Bank (ECB) headquarters in Frankfurt
Source:  Michael Zegers/imageBROKER/Shutterstock