ZEW Readings for Germany Improve Slightly

The ZEW economic situation assessment for December improved slightly for Germany but worsened for the EMU and for the United States. Still, Germany has a lower rank standing for its December reading at a 14.8% mark compared to a 22.7 percentile reading for the EMU and a 38.4 percentile standing for the U.S.

Macroeconomic expectations for Germany rose while expectations for the U.S. just ticked higher. German expectations surpass the U.S. reading with a 38.4 percentile standing versus U.S. expectations at a 23 percentile standing.

Interestingly, on the month inflation expectations for the U.S., Germany, and the EMU all rose and did so rather decisively (smaller negative expectations all around).

However, short-term rate expectations still are impressively more negative in December than in November for the EMU, Germany, and the U.S. The queue standings are below their historic 15th percentile levels for all three countries/areas indicating still very strong prospects for lower rates despite the inflation lift.

For long-term rates, expectations have low rankings as small declines in expectations on the month – quite small compared to the change in short-term rate expectations. On balance, percentile standings of rates are low but are also little-changed on the month.

Stock market expectations were cut sharply in the EMU, for Germany, and for the U.S. Market expectations still have a 43.88 percentile standing, but the EMU and Germany have stock market expectations around or below their respective 15th percentiles- relatively poor readings.

On balance, the ZEW experts do not see much change this month. The macroeconomic situation and expectations for economic developments are not much changed. And long-term rate expectations are little changed, but short-term expectations are significantly weaker although with the outlook for weak inflation being tempered. However, the inflation game is not as much about expectations changing because they are so low. ZEW experts are looking for central banks to begin to gain some flexibility and for that to affect rate setting policy and for policy to turn more passive. The reduced outlook for stock market performance is a clear signal that growth conditions are expected to remain challenging, fully in step with the weak macroeconomic rankings.