The July ZEW survey of German institutional investors and analysts revealed a sharp deterioration in the excess of those who see improvement in the economic outlook six months ahead and those who see worsening conditions. The excess in July was 10.4% compared with 20.3% in June. The historical average of optimists over pessimists is 32.8%.

The participants in the ZEW survey also expressed slightly less confidence in the current situation. The excess of optimists regarding current conditions fell to 88.2% in July from 88.7% in June, nevertheless, the confidence in the current situation is among the strongest reported over the entire history of the survey, as can be seen in the first chart.

Concerns over the rising price of oil, the strengthening of the euro and higher interest rates may have accounted for some of the weakening confidence among the financial community. Although there was some relief to the rising price of oil and strengthening of the Euro in the second quarter of this year, the price of oil has risen almost 58% from the low point of the year of January 18, to July 16 and the euro is up almost 7% over the same period. The daily prices of a barrel of Brent Crude and the dollar exchange rates of the euro for the current year are shown in the second chart. While the European Central Bank (ECB) did not raise rates at its last meeting, its base rate has risen steadily over the last 18 months from 2% in November, 2005 to 4% currently, as shown in the third chart. Moreover, the bank continues to stress that further tightening may be needed.