A mixed German ZEW report

Macro 5 minutes to read

Christopher Dembik

Head of Macro Analysis

Summary:  In a holiday-shortened week with few important economic data releases, the ZEW provides something a bit meatier. But the news is both good and bad...


The German ZEW survey for April was one of the most important European data releases this week. It was a mixed report. Current economic sentiment is getting weaker and is now at 5.5 vs the 8.5 reading that was expected. However, there are three positive signals as well:
 
(1) There are indications of stabilisation in the car industry which represents roughly 14% of Germany’s GDP.

(2) Construction and services are heading north, respectively at 47.6, the highest level since May 2018, and 34.7.

(3) Economic expectations continue to improve and are back in positive territory at 3.1 versus minus 8.2 at the same time last year. Nonetheless, it remains under its long-term average of 20.3, as you can see in the chart.
The big picture

Since the beginning of the year, Germany’s growth has been revised downwards to 0.5%-0.6%, depending on the institute compiling the numbers. Expectations for Q1 are not high since there has been a bunch of data lately indicating that growth will be moderate. Germany’s economy was hit hard by China’s slowdown and foremost by Turkey’s sharp economic drop over the past months. The latest German trade data released a few days ago confirmed concerns about export-oriented industry. German exports slump minus 1.3% MoM in February, much more than expected (minus 0.5%).

We believe that export data will slowly improve in coming months as the euro area REER (IC 37) is finally falling, and China's massive stimulus (estimated to be around 9% of GDP in Q1) starts to have a positive ripple effect. However, it will take months for China’s higher inflow of liquidity to stimulate Germany’s economy. As we have seen last week, China import figures are still ugly, which proves that stimulus has not reached yet the Chinese consumer and therefore global trade. 

In Q2, Germany’s economy should still be supported by private consumption, as was the case in Q1. However, the momentum may be decelerating as suggested by the latest rather disappointing GfK print for April. The ZEW survey authors pointed out that German consumers are a bit less optimistic, mostly due to concerns about Brexit and trade tensions despite bright outlook on labor market. Consumers and companies don’t expect the country to slip into a recession this year – contrary to some investors and experts – but they anticipate a new quarter of moderate growth. which, If confirmed, it could argue for stronger fiscal stimulus after the EU parliamentary elections, either at the national level or at the European level. 
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
Rooms 2001-02, 20/F York House
The Landmark
15 Queen's Road Central
Hong Kong

Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 Queen's Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.