ZEW: Economic Situation Improves on the Month in the Euro Area and the U.S.

The ZEW economic situation in January 2024 improved in the euro area and in the United States as it deteriorated in Germany. Two of the three metrics retain large negative readings and all three remained very weak in their respective historic queue of data.

The euro area economic situation improved from -62.7 in December to -59.3 in January. The U.S. situation improved from +7.8 in December to a stronger +15.3 in January, while Germany slipped from -77.1 in December to marginally weaker -77.3 this month. The U.S. current situation is the best of the lot, but still below its historic median with a ranking at its 42.2 percentile, below its median which occurs at a percentile ranking of 50. The euro area has a ranking in its 25.9 percentile and Germany has a ranking in its 14-percentile.

The table below shows economic expectations improved in January for both the U.S. and for Germany with Germany’s assessment positive and rising by 2.4 points. The U.S. expectation assessment that is negative rose by 12.2 points. Both have percentile standing around their respective 40th percentile mark.

Inflation expectations are deeply negative for both the euro area and the U.S. with a euro-ranking at its 6.5 percentile and the U.S. ranking at its 4.1 percentile. Both readings' diffusion values remained deeply negative in January as inflation expectations continued to be damped.

Short-term interest rate expectations in the euro area fell by 5.5 points while they fell by 18.7 points in the U.S. Short-term rates have expectation rankings in their 12th percentile for the EMU; they are at their sixth percentile for the U.S., underscoring that short-term rates are expected to fall in both areas.

For long-term rates, the negative readings are not as low in raw terms as the rank standings even weaker, under the 7% mark for Germany and under the 3% mark for the U.S. Long-term rates are expected to fall as well.

Stock market expectations in January rose for the EMU but fell in Germany and in the U.S., with German and EMU rankings below the 20th percentile and U.S. rankings at their 41-percentile.

The ZEW survey this month shows ongoing weakness, below median expectations, ongoing inflation reduction and interest rate optimism. Global conditions remain weak and central banks are still hiking or holding rates high to reduce inflation that is excessive wherever there is a target for it. But inflation itself has been falling and market participants- ZEW experts included- are expecting lower interest rates ahead.