ZEW worse than expected but still positive

Turning the tide? After a batch with worsening sentiment indicators over the last months, today’s ZEW index provides first tender evidence that the tide is turning again. The ZEW index which measures investors’ confidence increased marginally in May to 36.4, from 36.3 in April. Its absolute level is clearly above the historical average. At the same time, investors have become somewhat more negative on the current economic situation. The current assessment component dropped to 8.9, from 9.2 in April; the second consecutive drop.

In the past, the ZEW index did not have the best track record when it comes to predicting German economic activity. In fact, since 2006, the index had a tendency to “miss” the periods of strong growth. However, since mid-2011, however, the components of the ZEW and the Ifo have broadly stayed in tune. With this in mind, today’s data is encouraging for the growth outlook of the German economy.

Doubts about the strength of the German economy have almost become a new ritual at the beginning of each year. Indeed, over the last couple of years, the economy has often had a rusty start. Sometimes due to the euro crisis, sometimes due to the weather. In the end, however, the economy always managed to leave (almost) all problems behind.  Even if the recovery is not yet as strong as in earlier years, it still looks as if the German economy’s resilience will prevail again this year.