ZEW's October survey was surprisingly weak with analysts' assessment of both current and expected economic performance comfortably short of the market consensus.
Current conditions fell 12.3 points to 55.2, their sharpest decline since October 2014 and their lowest reading since March. Expectations were off an only slightly smaller 10.2 points at 1.9, their seventh consecutive decrease and their worst outturn in a year.
The findings provide one of the first real looks at how the impact of the VW emissions scandal has hit confidence and if anything, there may even be some relief that the report is not weaker still. Nonetheless, with worries about the slowdown in business activity in the emerging markets also a major feature, it was significant that ZEW felt obliged to talk down the likelihood of Germany sliding back into recession. Not so long ago the domestic economy was supposed to be leading the rest of the Eurozone on the path to solid economic recovery.
The correlation between the ZEW and PMI surveys is not especially high on a monthly basis but there is probably some extra downside risk to the latter in the wake of today's news.
The monthly survey, conducted by the Mannheim-based Center for European Economic Research (ZEW), asks German financial experts for their opinions on current economic conditions and the economic outlook for Germany as well as other major industrial economies.
The ZEW Indicator of Economic Sentiment is calculated from the results of the ZEW Financial Market Survey. The ZEW is followed closely as a precursor and predictor of the Ifo Sentiment Survey and as such is followed closely by market participants. The data are available the second week of the month for the preceding month. The survey provides a measure of analysts' view of current economic conditions as well as a gauge of expectations about the coming six months. The latter measure tends to have the larger market impact and reflects the difference between the share of analysts that are optimistic and the share of analysts that are pessimistic. About 350 financial experts take part in the survey.
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