German economic sentiment at pre-pandemic levels, outlook softens

LONDON (ICIS)–German economic sentiment strengthened in June as the current situation was assessed at pre-pandemic levels, economic research institute Zew said in a report on Tuesday.

Assessments of the current economic situation rose to -9.1 in June, beating analyst expectations of -28, to reach the highest point since August 2019.

The more robust assessment of current conditions may be the driver behind the slightly weaker forecast for upcoming months, according to Zew, as expectations remain bullish but with less expectation of a rally beyond current levels.

Zew’s economic sentiment indicator dipped 4.6 points month on month to 79.8 in June.

“The decline in expectations is probably largely due to the considerably better assessment of the economic situation, which is now back at pre-crisis levels,” said Zew president’s Achim Wambach.

“The financial market experts therefore continue to expect a strong economic recovery for the next six months,” he added.

Perceptions of current and future eurozone economic health by survey respondents mirrored that of the German business outlook, with current assessments firming to -24.4 points and future prospects dipping slightly to 81.3.

The trend of forecasts dimming slightly in line with more robust assessments of current prospects is likely to continue in the months to come, according to Pantheon Macroeconomics chief economic Claus Vistesen.

“We suspect the Zew expectations index will edge lower in the coming months, but it will remain elevated overall, given the high starting point of recent months; May’s reading was a near-twenty-year high,” he said.

“In addition, expectations won’t collapse, if, as we expect, prospects for the global recovery remain intact. By contrast, the current conditions index likely will continue to improve in line with easing of restrictions continues uninterrupted vaccine distribution,” he added.

Respondents also project that eurozone inflation will continue to heat up in the second half of the year, Zew added.

Front page picture: Industrial facilities in Dortmund, Germany
Source: Jochen Tack/imageBROKER/Shutterstock