German ZEW improves again

Full speed ahead? The German ZEW index increased in November to the highest level since October 2009. The ZEW index, which measures investors’ confidence, increased for the fourth consecutive month and now stands at 54.6, from 52.8 in October. At the same time, investors have become slightly less positive on the current economic situation. The current assessment component dropped to 28.7, from 29.7 in October. The end of the US government shutdown blues, the Eurozone stabilisation, the ECB’s rate cut and the latest stock market rally seem to have heeded analysts’ optimism. The ZEW index has not 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. Since mid-2011, however, the components of the ZEW and the Ifo have broadly stayed in tune. With this in mind, we could see another strong Ifo reading at the end of this week. The German economy continues to benefit from low interest rates, the strong labour market, solid domestic demand and the improved outlook for external demand. With the US leaving its government shutdown blues behind, at least until the end of the year, peripheral Eurozone countries stabilising further and China rebalancing its growth model, the recently criticized export sector should flourish again. As a consequence, the German economy should cruise along rather smoothly to the end of the year.