German economic sentiment drops for the first time in a year
The economic sentiment index of the German ZEW Institute recorded its first decline in July 2024 after 11 months. The index dropped by 5.7 points to 41.8 points, surprising analysts. The deterioration in sentiment is linked to geopolitical concerns and data from the industrial sector.
12:04 PM EDT, July 17, 2024
Germany is sending another signal confirming economic problems. The July reading of the ZEW index interrupted a year-long upward trend. In their latest report, experts from the institute point to several factors that contributed to the deterioration in sentiment among investors and analysts.
Uncertainty in Europe casts a shadow on the economy
Among the main reasons was the deeper-than-expected decline in German exports in May. Additionally, political uncertainty in France and a lack of clarity on the European Central Bank's future monetary policy negatively impacted expectations for economic development.
Despite the decline in the expectations indicator, the assessment of the current economic situation in Germany slightly improved. The relevant index rose by 1.6 points, reaching a value of minus 68.9 points. However, as experts emphasize, this level remains historically low, indicating ongoing challenges for the German economy.
The Eurozone also has a problem
The deterioration in sentiment is not limited to Germany. The ZEW index for the entire eurozone also recorded a decline in July, decreasing by 5.5 points to 37.3 points. At the same time, the assessment of the current economic situation in the eurozone slightly improved, increasing by 0.7 points to minus 53.8 points. These data suggest that the German economy's challenges are part of a broader European trend.
Professor Achim Wambach, president of ZEW, commented on the survey results and highlighted the deterioration of economic prospects. He emphasized that the decline in economic expectations for Germany for the first time in a year is a significant signal for policymakers and market participants. Wambach noted that a combination of external and internal factors contributed to this negative trend.
Experts from PKO BP, analyzing the latest data, point to the broader geopolitical context and its impact on investor sentiment. "The deterioration in the economic climate is driven by geopolitical concerns stemming from recent elections in France and the United Kingdom, as well as the upcoming elections in Germany (elections in two federal states) and the USA. Also worrying are the industrial sector results, suggesting declining chances for a quick economic recovery," the bank's report reads.
