ZEW's January survey found analysts again less pessimistic about both the current and, in particular, expected state of the German economy. However, while the latter was much stronger than the market consensus, the former was a little softer.

The current conditions gauge rose 2.8 points to minus 58.6, its third consecutive advance and a 5-month high but still well short of the levels seen prior to Russia's invasion of Ukraine. Indeed, even now it remains almost 50 points below its long-run average. However, economic sentiment (expectations) jumped fully 40.2 points to 16.9, its largest gain since April 2020 and its first positive reading since February last year. This was the gauge's fourth straight increase and narrowed the gap with its historic norm to just 4.5 points.

The overall January improvement seems to reflect a more favourable situation in the energy markets, government efforts to cap energy prices and the reopening of the Chinese economy, Germany's most important export market. Taken at face value, the report suggests that analysts are significantly more upbeat about the outlook over the first half of 2023. Today's update puts the German ECDI at minus 8 and the ECDI-P at 9. In other words, outside of inflation, economic activity in general is performing slightly better than expected.

Current conditions are expected to recover further in January to minus 58.4 versus minus 61.4 in December. Expectations (economic sentiment) have improved more than 35 points the past two reports and further improvement for January is expected, to minus 15.5 versus December's minus 23.3.

The Mannheim-based Centre for European Economic Research (ZEW), asks German financial experts every month for their opinions on current economic conditions and the economic outlook for Germany (as well as other major industrial economies). The responses are synthesised into two simple indices that provide a snapshot of how the economy is seen to be performing.

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 around mid-month for the current 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.