While analysts have become even more pessimistic about the current state of the German economy, at least they are now a little less negative about the outlook. Compared with market forecasts, ZEW's September survey was similarly a very mixed bag.

The current conditions index continued to spiral south. At minus 79.4, the latest reading was 8.1 points below its August print, 4.4 points short of the market consensus and the weakest outturn since August 2020. The gauge has declined every month since April, losing a cumulative 46.9 points over the period. However, economic sentiment (expectations) made further, if limited, ground. The sub-index here rose 0.9 points to minus 11.4, beating the consensus call and registering a 3-month high. That said, it remains nearly 40 points short of the 2023 peak seen in February and historically soft.

The deterioration in current conditions is consistent with growing expectations that German GDP growth will turn negative again this quarter. The modest improvement in sentiment may well reflect more hope than actual expectations. Indeed, near-term prospects remain gloomy and with the German RPI (minus 21) and RPI-P (minus 24) both well below zero, are possibly even worse than currently discounted in financial markets.

Current conditions are expected to fall in September to minus 75.0 versus August's minus 71.3 which was 9 points lower than expected. Expectations (economic sentiment) are expected at minus 15.0 versus August's minus 12.3 which, by contrast to current conditions, was more than 2 points better than expected.

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.