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Economy in Brief

Sentiment in France and Germany in the Developing Financial Crisis
by Louise Curley October 14. 2008

The September reading of the Bank of France's monthly business survey in industry and the October reading of the ZEW indicator in Germany give some indication of the mood of the French and the Germans as financial conditions worsened world wide.

The indicator of sentiment among French businessmen fell 6.82 points in September to 86.97, 13% below its long term average of 100, but still some 12 points above the low of 74.97 reached in July, 1993. (See the first chart.) The French survey was taken during the first five working days of September when worse news was yet to come.

The ZEW survey was conducted in late September through October 13. According to institutional investors and analysts in Germany, macroeconomic expectations, which had become less negative in August and September, fell sharply in October. The excess of pessimists over optimists increased 21.9 points to 63.0%, just below the all time high of 63.9% in July of this year. The ZEW measure of current conditions dropped 34.6 points in October, even more sharply than the measure of expectations. The measure of current conditions had been positive through July of this year. The ZEW measures of current conditions and of expectations are shown in the second chart.

The ZEW press release noted: "A separate analysis was made for 39 answers that came in on October 13th, the day on which the German Government decided in favour of a rescue package for the German banking sector. It shows that the decline of the economic expectations for Germany was less pronounced after the decision on the rescue package was made.".

MEASURES OF SENTIMENT   Oct 08 Sep 08  Aug 08  Jul 08  Jun 08  May 08 
Bank of France Business Survey 86.97 93.79 91.58 94.95 95.88
  Macro Expectations (% balance) -63.0 -10.1 -55.5 -63.9 -52.4 -41.4
  Current Conditions (% balance) -35.9 -1.0 -9.2 17.0 37.6 38.6
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