A mixed German August ZEW Survey

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  Due to the holiday break, there are few important economic data releases this week with the exception of some EM central bank meetings and a bunch of European statistics. Fortunately, this morning, the German August ZEW Survey is here to provide something a bit meatier. But the news is both good and bad…


The German August ZEW Survey was one of the most important European data releases this week. It was a mixed report. The current situation assessment is slightly deteriorating again, sliding 0.4 points to land at 81.3 points, which is below consensus. On top of that, many panelists mentioned as a key concern for the coming six months the poor financial situation of the banking sector and insurers due to the prolonged period of negative interest rates and risks related to an increase in non-performing loans from Q4 2020-Q1 2021 due to the expected wave of bankruptcies following the COVID-19 recession. This is nothing new, but it will certainly contribute to influencing the panelists’ mood in the coming months.

However, there are also some encouraging signals that will probably be the main market focus this morning:

  1. The current economic sentiment by sector continues to improve, salvaging the hopes for general recovery in the coming months. Without much surprise, panelists are more optimistic for sectors most exposed to domestic demand, such as utilities or construction, that should benefit from the resilience of the German labor market, the increase in household saving rate during the lockdown and higher public investment as part of the ambitious stimulus package unveiled in past June. But even sectors most exposed to global trade dynamics and foreign demand show signs of continued improvement. The current economic sentiment for the car industry, which represents roughly 14% of Germany’s GDP, is out at minus 15.9 vs an annual low point at minus 80.7 at the start of the lockdown. The August print is the highest level since Spring 2018.

  2. Economic expectations are heading north again. As expected, the split in the expectations subindex in July (by 3.4 points to 59.3) was not synonym of new downward trend. In August, the subindex jumped again by 12.2 points to 71.5 which is the highest level reached since early 2004 and the largest growth since past May. It is standing way above its long-term average of 19.5. This new jump confirms optimism prevails among panelists concerning the future of the German economy. This dominant optimism is mostly fueled by the ongoing economic normalisation following the lifting of lockdown, hope of beating COVID-19 with the promising development of different vaccine technologies and continued stock market gains (with an increase of more 20% of the German DAX over the past three months).

These statistics tend to point out that the pick-up in activity in Germany is not doomed to slow significantly anytime soon and that the economic comeback continues in Q3. This scenario is also corroborated by the Eurozone August ZEW Survey that was released at the same time this morning. The economic sentiment was up by 4.4 points at 64 points, marking the highest growth rate since May. That being said, we acknowledge that current process of economic normalisation is not without challenges. There is still a lot of uncertainty regarding the path of the economy in the coming months. The risk of second COVID-19 wave in Europe is not off the radar, meaning that some very localized lockdowns could be implemented here and there, and global trade, which is a key GDP driver in Germany, is probably doomed to remain gloomy at least until the end of the year, based on all the data we have gathered, especially from Asia (see here our latest analysis about global trade).

Charts: German ZEW Current Economic Situation (by Sector) and German ZEW Economic Expectations.

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/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.