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Economy in Brief

Zew Jumps
by Robert Brusca  February 19, 2013

The Zew expectations reading jumped in February to 48.2 from 31.5. This near-neutral reading (a reading of 50 would balance positive with negative expectations) stands in the 36th percentile of its historic queue of net readings; it is stronger than this only 36% of the time. The current conditions index fell to 5.2 from 7.1 and it is also in the 36th percentile of its historic queue. One year ago the expectation index was higher 74% of the time, a much lower standing but the current reading was higher, as it was stronger only 15% of the time. Things have changed a great deal in a year.

The Zew index is transitioning from its weak phase to a stronger phase. The 'net readings' on the two indices have crossed over with the expectations reading now higher than the current reading for a number of months (the zeros on the two scales line up). Despite the slippage in the current index the strong rise in the expectations index is a sign that the economy is really expected to transition to better growth.

The Bundesbank has in fact just announced that it expects the German economy to avoid recession.

Even so the Zew financial experts' ratings on stock and bond investments both slipped slightly this month. But the downward current index has been an important negative signal- often a leading signal for the German stock market. The current divergence between the Zew current index and the Dax is a remarkable historic event against the context of its past relationship. The two series have moved at very different speeds but not in different directions- not for this long. Although the rising expectations index gives DAX investors some comfort, in the past 10 years there has never been such a divergence as this between the Dax and the current Zew index.

ZEW Economic Index for Germany
Level of Zew Index Averages
Feb-13 Jan-13 Dec-12 Yr Ago 3-mo 6-mo 12-Mo
Current 5.2 7.1 5.7 40.3 6.0 7.7 20.1
Expectations 48.2 31.5 6.9 5.4 28.9 6.9 3.0
Current 54.6 55.6 54.8 73.1 -- -- --
Expectations 73.0 62.1 46.1 45.1 -- -- --
Percentiles are readings in this period as a percentile of the full range of values back to 1/92
Count Percentiles reading is stronger than this 'XXX' percent of the time...
Current 36.1% 34.1% 35.1% 15.8% -- -- --
Expectations 36.1% 47.8% 71.4% 74.2% -- -- --
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