German Investors Slightly Less Pessimistic About The Outlook, But See Current Conditions Worsening

The ZEW Center for European Economic Research in Mannheim, Germany released the results of its December survey today. In spite of an increase of 8.3 percentage points in the balance of opinion of German investors and analystsregarding the macroeconomic outlook, they are still about as pessimistic as they ever have been. The recent decline in sentiment began in mid 2007 with the spreading effects of the United States housing crisis and reached a low in July of this year when the excess of pessimists over optimists reached 63.9%. The only other period when pessimists exceeded optimists for a prolonged period took place in 1992 and early 1993. At that time, the excess of pessimists reached a peak of 62.2% in December1993 as shown in the attached chart, which shows the history of the ZEW indicators. The reduction in the key interest rate of the European Central Bank, which now stands at 2.5%, down from 5.25% in September and the recent passage of a 32 billion euro stimulus plan by the German government may have helped to arrest the downward trend in pessimism regarding the outlook and to lead to the modest improvement in sentiment. In contrast to the improvement in sentiment regarding the outlook, investors and analysts became more pessimistic in December about current conditions . The excess of pessimists over optimists regarding current condition now stands at 64.5%, up from 50.4% in November and not far from the high negatives of 1993 and 2003, as can be seen in the attached chart. While the fiscal and monetary measures undertaken in recent weeks may have improved sentiment concerning the outlook, there have been few, if any, encouraging developments in the real economy.

GERMANY	Dec 08	Nov  08	Dec  07	M/M  chg	Y/Y  chg	2007	2006	2005
ZEW INDICATOR   (% BALANCE)	-	-	-	-	-	-	-	-
Current Situation	-64.5	-50.4	63.5	-14.1	-128.0	7.3	75.9	18.3
Future Conditions	-45.2	-53.5	-37.2	8.3	-8.0	-47.5	-3.0	22.3