German Investors A Bit Less Pessimistic About The Outlook Merchants In Japan More Pessimistic Than Ever

Investors in Germany appear to be encouraged by the steps the central bank and the government have taken in recent weeks to deal with the economic slowdown. The European Central Bank reduced it key rate by 50 basis points on October 8 and is expected to reduce it by another 50 basis points on November 12 binging it to 3.25%. In addition, the German government passed a $64 billion stimulus package on November 4.In the latest ZEW survey, the excess of pessimists over optimists regarding future conditions declined to 53.5% in November from 63.0% in October. This still a far cry from the historical average of an excess of optimists of 27.1%.In appraising the current situation, German investors have become more and more pessimistic--or perhaps more realistic. From an excess of optimists over pessimists of 17% in July, there is now an excess of pessimists over optimists of 50.4% viewing the current situation. The ZEW indicators for current and expected conditions, together with recession shadings for Germany, are shown in the first chart.

In Japan, the merchants who make up the Economy Watchers Diffusion Index have reported worsening conditions for both for the present and for the future outlooks in almost every month since mid 2007, when the sub prime problem in the U. S. first surfaced. Currently, these indexes are at all time lows as can be seen in the second chart, which plots the history of the diffusion indexes and the recession shading for Japan. The Bank of Japan recently cut its key interest rate to 0.3% from 0.5%, but little has been done in the way of fiscal stimulus.