Pessimism Increases in the Financial Community of the Euro Area

Institutional investors and analysts surveyed by ZEW the Center for European Economic Research at Manheim are becoming increasingly concerned about the economic outlook for the Euro Area and Germany, in particular. Among other concerns, the continued rise in the Euro and the widening repercussions of the problems in the U.S. sub prime mortgage market are taking their toll. The excess of pessimists over optimists regarding the outlook for the Euro Area increased to 35.7% in December from 30.0% in November. For Germany alone, the comparable figures were 37.2% and 32.5%.

The participants in the Survey are also becoming less confident about current conditions. The excess of optimists over pessimists regarding current conditions in the euro Area declined to 59.6% from 60.2% in November. The comparable figures for Germany were 63.5% and 70.0%. The first chart shows the balance of opinion on current conditions and expectations for the outlook for Germany and the second chart shows the comparable data for the Euro Area.

While confidence regarding current conditions is diminishing, it should be noted that in the historical context confidence both in Germany and the Euro Area as a whole remains at a high level, well above the period of low confidence in current conditions in the first half of this decade.