German Financial Community Still Confident About Germany But Wary of the Euro Area

The results of the April ZEW survey for Germany were more up beat than had been anticipated. Among the 275 institutional investors and financial analysts who participated in the survey, the excess of optimists over pessimists regarding the outlook six months from now increased 1.1 percentage points from 22.3% in March to 23.4% in April and the excess of optimists over pessimists regarding the current situation increased 3.1 percentage points from 37.6% in March to 40.7%. Expectations had been for declines in both appraisals.

The results for the Euro Area also showed improvement, partly due, perhaps, to the fact that it includes Germany. The excess of optimists regarding the outlook six months ahead increased from 11.0% in March to 13.1% in April. This compares with 23.4% for Germany alone. Expectations of macroeconomic conditions six months from now for Germany and the Euro Area are shown in the first chart. There was a slight decline in the excess of pessimists regarding current conditions in the Euro Area from -49.4% in March to -49.0% in April. The contrast between the appraisal of current conditions in Germany and in the Euro Area is stark. While there was an excess of optimists of 40.7% in Germany regarding current conditions, in the Euro Area, there was an excess of pessimists of 49.%, as shown in the second chart.

The contrast between the appraisals of conditions in Germany and the Euro Area is not only stark but unusual as well. Before mid 2010 there was a close association between the two series. How long will the divergence last? Can Germany remain isolated from conditions that are troubling the rest of the Euro Area? While the German financial community is not overly optimistic, it does appear somewhat complacent regarding Germany's macroeconomic expectations six months ahead.