European
ZEW Indicator of Economic Sentiment for Germany in March slackened but recovery is still on track
By Finfacts Team
Mar 13, 2007, 10:09

The ZEW, the European Centre for Economic Research, is a non-profit economic research institute with the legal form of a limited liability company (GmbH). It was founded in 1990 on the initiative of the government of the German federal state Baden-Württemberg, trade and industry, and the Mannheim University.

The dynamism of the recovery process traced by the ZEW Indicator of Economic Sentiment for Germany slackened off somewhat in March 2007. The indicator rose by 2.9 points and now stands at 5.8 points after 2.9 points in February. This is still far below its historical average of 33.2 points.

The ZEW Indicator of Economic Sentiment for Germany suggests that the German economy is continuing to recover. Domestic incoming orders developed favourably despite the increase in value-added tax.

The Institute for the World Economy in Kiel, Germany on Monday revised its forecast for the German Economy to 2.8% growth in Gross Domestic Product (GDP) - faster than the 2.7% achieved in 2006, which was the fastest rate since 2000. 

Consumer confidence has also stabilized thanks to good news from the German labour market. The decline in incoming orders from abroad, on the other hand, is disconcerting as this could be interpreted as the beginning of a fall in world demand. Rising oil prices are another risk factor.

"The German economy is still expanding and the demand for labour rising. This should not, however, be misused by the parties in the collective bargaining process to push through excessive wage claims", said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

The assessment of the current business situation worsened for the first time since June 2005. The corresponding indicator decreased slightly from 70.6 points to 69.2 points in March.

Economic expectations for the Eurozone also declined somewhat. The indicator decreased slightly by 1.7 points and now stands at plus 5.1 points. The corresponding indicator for the current economic situation in the Eurozone increased marginally this month by 0.2 to 66.9 points.

296 analysts and institutional investors participated in this month's ZEW Financial Markets Survey which is conducted on a monthly basis by the Centre for European Economic Research (ZEW), Mannheim. The participants were asked from February 26 to March 12,

2007 about their medium-term expectations concerning economic activity and capital markets. The ZEW Indicator of Economic Sentiment shows the balance between positive and negative expectations regarding future economic activity in Germany within a timeframe of six months. The horizontal line indicates the historical mean of the indicator.