Economy in Brief: December 2023

The ZEW economic situation assessment for December improved slightly for Germany but worsened for the EMU and for the United States. Still, Germany has a lower rank standing for its December reading at a 14.8% mark compared to a 22.7 percentile reading for the EMU and a 38.4 percentile standing for the U.S.

Macroeconomic expectations for Germany rose while expectations for the U.S. just ticked higher. German expectations surpass the U.S. reading with a 38.4 percentile standing versus U.S. expectations at a 23 percentile standing.

Interestingly, on the month inflation expectations for the U.S., Germany, and the EMU all rose and did so rather decisively (smaller negative expectations all around).

However, short-term rate expectations still are impressively more negative in December than in November for the EMU, Germany, and the U.S. The queue standings are below their historic 15th percentile levels for all three countries/areas indicating still very strong prospects for lower rates despite the inflation lift.

For long-term rates, expectations have low rankings as small declines in expectations on the month – quite small compared to the change in short-term rate expectations. On balance, percentile standings of rates are low but are also little-changed on the month.

Stock market expectations were cut sharply in the EMU, for Germany, and for the U.S. Market expectations still have a 43.88 percentile standing, but the EMU and Germany have stock market expectations around or below their respective 15th percentiles- relatively poor readings.

Japan's Ministry of Finance outlook index paints a positive assessment of the economy and especially for the outlook over the next two quarters. The reading for large enterprises across all industries did backtrack for the current quarter to 4.8 from 5.8, but the bellwether manufacturing reading for large enterprises improved to 5.7 from 5.4. The headline was dragged down by nonmanufacturing where the net index fell to 4.4 in the fourth quarter from 6.0 in the third quarter.

The standing for the current reading for large enterprise manufacturing is at its 66th percentile just barely in the top two-thirds of historic observations back to 1990. That's the same relative standing for the quarter ahead outlook; however, for the quarter after that that percentile standing jumps to its 95th percentile. Whatever hesitation is present in the current ranking it is not souring expectations for the next two quarters.

Nonmanufacturing large enterprises have a current quarter standing in the 78th percentile with the quarter ahead assessment at its 80th percentile and the quarter after that at its 81st percentile. On balance, these are all strong readings for this survey and are led forward by the bellwether large manufacturer’s outlook.