Economic Sentiment In Germany's Financial Community Rises Sharply In August

The participants in the ZEW survey--institutional investors and analysts--have become much more positive about the outlook, six months ahead. The ZEW Economic Sentiment indicator increased 16.6 points in August to reach a percent balance of 56.1, the highest since April 2006 and well above the long term average of 26.5. At the same time the appraisal of the current economic condition was somewhat less negative. The excess of pessimists regarding the current economic situation was 77.2% compared with 89.3% in July. The two indicators are shown in the first chart.

Recent data showing improvements in orders, production, exports and an increase in Germany's second quarter GDP, no doubt, influenced the improvement in both the appraisal of the current situation and of the outlook. The continued high negative balance of opinion regarding the current situation could suggest that the financial community has yet to be convinced that recovery is underway, but their positive view of the future suggests otherwise. (Opinions are influenced by current economic conditions and opinions, through their impact on "animal spirits" influence future economic conditions.)