The May ZEW Survey Of The German Financial Community Sends A Mixed Message

The financial crisis in the Euro Area cast a wet blanket on the optimism of German institutional investors and analysts. The survey of 275 participants was taken during the period from May 3 to May 17. The May balance of opinion of those expecting improved conditions over the next six months over those expecting worsening conditions dropped 7.2 points from 53.0% in April to 45.8% in May. The balance has fallen from the peak of 57.7% in September of last year, but it is still well above its average value of 27.4, as can be seen in the first chart.

The balance of opinion on current conditions, however, improved by 17.6 points from -39.2% to 21.6% over the same period. The excess of pessimists is down substantially from the -92.8% balance in May 2009. The German financial community tends to view current conditions pessimistically. Over the life of the survey, the average view of current conditions has been a balance of pessimist over optimists of 32.4% as can be seen in the second chart. The May figure is slightly above the average.

In spite of downgrade in expectations for the economy over the next six months, the financial community expects increased profits for each of the industries polled except for Services, Banking, and Insurance, industries most likely to be affected by financial turmoil. Small increases in profits are expected in the Utilities, Telecommunication, Information Technology, Construction and Consumption/Trade industries. More substantial increases in profits are expected in the Vehicle/Automotive, Chemical/Pharmaceutical, Machinery, Steel/Metal and Electronic industries. Profit expectations in the first four of these industries are shown in the third chart.