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Global| May 14 2024

ZEW Survey Shows Improvements in German Expectations and Conditions

The economic situation, surveyed by the ZEW's survey, showed improvement in the euro area to -38.6 in May from -48.8 in April. The German survey improved to -72.3 in May from -79.2 in April. However, the economic situation in the United States lost some of its luster, with its index falling to 40.9 in May from 48.5 in April.

The survey for expectations in Germany improved to 47.1 in May from 42.9 in April. For the U.S., macroeconomic expectations remained negative at -13 in May, weaker than the -0.7 reading in April.

Inflation expectations and showing moved away from the view is an inflation was continuing to fall as the euro area continued to post a negative value of -45.6 in May, but that was stronger than the -49.1 in April. Germany's reading rose to -41.0 in May from -47.8 in April. The reading for the U.S. was much less changed, at -41 in May compared to -42.6 in April.

On the back of those expectations, short-term interest rates in the euro area were less intensely forecasted to fall as the headline reading of -80.5 in May rose from -84.6 in April. In the U.S., the reading rose to -55.2 in May from -63.7 in April.

Long-term interest rate expectations continue to drop, however. In Germany, expectations for long-term rates fell to -33.5 in May from -26.9 in April. In the U.S., the reading edged lower to -28.3 in May from -26.5 in April. The outlook for lower long-term interest rates is still intact.

Stock market performance in May is stronger in the U.S., euro area, and Germany. This is despite some minor degradation in the assessment for current conditions and expectations in the U.S. Euro area stock market expectations showed its diffusion value of 23.3 in May, up from 7.2 in April. The German reading rose to 18.7 in May from 3.8 in April. The U.S. index in May rose to 21.5 from 9.9 in April. All-in-all, the ZEW survey participants are becoming much more constructive on the stock market as they become modestly and more constructive on the bond market.

Despite these various shifts in the survey, the percentile standings of most of these indicators remain extremely weak: for example, economic situation assessments stand in the 41st percentile for the euro area, the 17th percentile for Germany but manage to rise above the neutral mark of 50 to the 58.1 percentile in the U.S. Economic expectations in Germany have crept up to a 68.8 percentile reading compared to only a 32.3 percentile reading in the U.S. Inflation expectations everywhere remain low with the euro area and the U.S. having percentile standings below their 10th percentile, while in Germany they post a still-low value in its 14th percentile- all those are very low readings. Short-term interest rate expectations in the euro area have been lower only 4.1% of the time; in the U.S. they've been lower only 9.3% of the time. Long-term rate expectations have been lower in Germany only 2.2% of the time and in the U.S. only 1.9% of the time on the ZEW survey metric. Participants continue to look for extremely low long-term interest rates. The stock market expectations, while up sharply in the month, have only reached the 24th percentile for Germany, the 12th percentile for the euro area and the 38th percentile for the U.S. On balance, stock market expectations haven’t reached their median values in any of these areas and although they've improved the outlook for their performance is still muted.

  • Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media.   Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.

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