ZEW Index of German Confidence Rises to Highest Level in Sixteen Months

The ZEW Index that measures investors' expectations of economic growth rose to 67.2 in November from 60.3 in October and was at its highest level since July, 2002. Movements in the index often foreshadow those of the broader IFO index that measures businessmen's expectations. Investors, however, tend to be more optimistic and more volatile than the business men as can be seen in the attached chart.

Increased confidence has yet to result in any significant upturn in the German economy. However, those developments that have recently led to the increased confidence, such as growing exports in spite of the rise in the Euro, the irregular, but definitely upward trend in manufacturing new orders and a small decline in the unemployment rate, have only recently begun to surface. Developments such as these, are usually the precursors of increased demand that eventually leads to higher production. The rising confidence on the part of investors suggests that these underlying developments may be gathering strength.