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Economy in Brief

German Financial Community Turns Less Optimistic   
by Louise Curley June 19, 2007

The ZEW indicator that measures the balance of opinion among German institutional investors and analysts on the outlook six months ahead fell to 20.3% in June from 24% in May. The consensus expectation was for a rise to 29%. At the same time the balance of opinion on current conditions rose to a record of 88.7%, as shown in the first chart.

Some of the events that took place and some of the data that were released during the period, June 4th to June 18th, when the participants of the survey were asked for their opinions, may help explain the decline in the optimists over the pessimists.

The European Central Bank raised its official rate to 4% on June 6 and suggested further increases might be in the offing. The yield on the ten year government bond, which had been rising moderately since March, jumped by 8 basis points on June 8th. Although it has since recovered, the Frankfurt Xetra Dax Index declined 2.4% in the one day of June 6. The second chart shows the ten year government bond yield and the stock market index on a daily basis for the last year and a half.

During the survey period it was revealed that the volume of manufacturing sales had declined 3.07% in April from March and that the volume of new orders for April was 1.17% below March. Moreover, April industrial production was down 2.27% from March. On the cost side, unit labor costs were up sharply, 4.25%, in April from March.

ZEW INDICATOR  (% BALANCE)  Jun   07 May  07  Jun   06 M/M Dif Y/Y Dif 2006 2005 2004
Current Conditions 88.7 88.0 11.9 0.7 76.8 18.3 -61.8 -67.7
Expectations 6 months ahead 20.3 24.0 37.8 -3.7 -17.5 22.3 34.8 44.6
ECONOMIC INDICATORS  (2000=100) Apr   07 Mar  07  Apr   06 M/M % Y/Y % 2006 2005 2004
Manufacturing Sales 116.9 120.6 111.6 -3.07 4.75 113.3 106.3 103.0
Manufacturing New Orders 127.0 128.5 117.7 -1.17 7.90 119.0 108.7 103.2
Industrial Production 112.1 114.7 108.1 -2.27 3.70 109.8 103.7 100.8
Unit Labor Cost 93.2 89.4 93.0 4.25 0.22 91.8 95.9 99.3
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