While continuing to be pessimistic about current conditions, German investors and financial analysts have become surprisingly more optimistic about the economic outlook over the next six months.   The ZEW indicator of current economic conditions in May declined a further 1.2% and is now at a balance between pessimists and optimists of -92.8%, close to the lowest on record, -96.1% in March 2003. The indicator of sentiment for the economic outlook for the next six months, however, rose sharply in May to 31.1% from 13.6% in April and is now at a three year high and is above the long term average of 26.2%. 

Among the factors that may have accounted for some of the improvement in the outlook of the participants in the survey, which was conducted between May 4th and May 18 was the ongoing rise in stock prices that had begun in early March.  By May 18, the Frankfurt Extra Dax stock price index was up over 30% from the low on March 6. In addition, there were the releases of March exports and new orders showing the first month to month increases since early 2008, as shown in the second chart.  The year to year declines in these series of 21.7% and 33.1%, respectively, probably were important factors in the appraisal of current conditions.

While the participants in the survey, still expect profits in most industries to decline, they have moderated their views on the declines and they expect profits in Banking and Insurance to increase.  The third chart shows the profit expectations for the Banking, Automotive and Information Technology industries.