ZEW Indicator Appraises Current Conditions And Expectations Over Next 6 Months In Germany And Euro Area

There was little change in the German financial community's appraisal of current conditions and expectations for the next six months in the German economy from November to December. The latest ZEW survey that took place during the period from November 29th through December 13th shows that the balance of opinion on current conditions rose 1.1 percentage points from 81.5% in November to 82.6% in December. The balance of opinion on expectations rose slightly more, 2.5 percentage points from 1.8% in November to 4.3% in December. The balance of opinion on expectations is, however, well below its long term average of 26.8%. The balances of opinion on current conditions and expectations for the German economy are shown in the first chart.

There was a more significant change in the group's appraisal of the profit outlook. In November, in twelve of the thirteen industries monitored, the balances of opinion on the outlook for profits increased and the one industry were lower profits were expected, Telecommunications, showed only a small decline from 18.7% to 18.0%. In the December survey, higher profits were expected in only five industries: Vehicles/Automotive, Steel/Metal, Consumption/Retail Trade, Construction and Utilities. Profit expectations for the other eight industries--Banking, Insurance, Chemical/Pharmaceutical, Electronics, Machinery, Services, Telecommunications and Information Technology--were lowered.

The participants in the ZEW survey also express their opinions on current conditions and expectation for the Euro Area as a whole. The balance of opinion on current conditions in the Euro Area is still negative and became more negative in December, declining to -4.6% from -1.0% in November. This pattern is in sharp contrast to that for Germany, which has been positive and growing more so. Apparently the improvement in the large positive balance of opinion regarding Germany's current conditions has been offset by large negative balances of opinion on current conditions for some of the other countries in the Euro Area--Greece, Portugal, Ireland and Spain, perhaps. The significant difference in balances of opinion on current conditions between that for the Euro Area and Germany is probably due to the current financial problems within the Euro Area. In the past, the balances of opinion on current conditions in the Euro Area and in Germany were roughly of the same magnitude, as can be seen in the second chart.

Despite concerns about current conditions, the participants in the ZEW survey are more optimistic about expectations for the next six months in the Euro Area. The balance of opinion on expectations has risen from 13.8% in November to 15.5% in December and is higher than the balance of opinion on expectations for Germany which is only 4.3%. The balances of opinion regarding expectations for the Euro Area and for Germany are shown in the third chart.