German Investors Upbeat On Economic Prospects 6 Months Ahead

The German financial community is upbeat on Germany's economic prospects over the next six months despite the disruptions caused by the eruption of the Icelandic volcano.  The ZEW Survey of institutional investors and analysts took place over the period, March 29 to April 19, that latter part of which was affected by the eruption of the volcano.  The survey revealed that those expecting macroeconomic conditions to improve over the next six months exceeded those expecting conditions to worsen by 53% up from 44.5% in March.  This was the first increase since September of last year and its magnitude exceeded consensus estimates of a rise.  

The change in the appraisal of current conditions was even greater.   The financial community has had a dim view of current conditions since August, 2008 when the pessimists regarding current conditions began to exceed the optimists.  By May 2009 the excess of pessimists reached 92.8%.   Since then, there has been a steady decline in the percentage of pessimists.  In April, the excess of pessimists was 39.2% an 11.7 point decline from the 51.9% of March. The percent balances between optimist and pessimists regarding current conditions and expectations for the next six months are shown in the first chart.

The improved appraisal of current conditions and expectations has led to some changes in profit expectations.  The second chart shows those industries where profit expectations have increased the most in the last month.  Although expectations for profits in the Vehicles/Automotive and Consumption/Trade are small and even negative in the case of the latter, expectations for profits in both these industries have increased the most in the last month.  Profit expectations for these industries and two other industries where profit expectations have had big increases--Machinery and Electronics--are shown in the second chart.  

Over the past few months the economic news in Germany had been encouraging.  The euro has declined almost 11% since early December.  Unemployment continues to fall and  new orders, particularly foreign, have been strong. may have contributed to the good feeling in the financial community