This month, analysts again marked down their assessment of the current state of the German economy but continued to raise their expectations for future growth. Both measures were on the firm side of the market consensus.

In fact, economic sentiment (expectations) rose a solid 10.2 points to minus 1.1, its steepest gain since February and the highest reading since April. This was the third successive increase. By contrast, the current conditions index dipped a further 0.5 points to minus 79.9. This was its sixth successive fall and its weakest outturn since August 2020. The gauge has shed more than 47 points since its 2023 peak in April.

The deterioration in current conditions is consistent with growing expectations that German GDP growth will turn negative over the second half of the year. However, the improvement in sentiment is large enough to suggest analysts believe that signs that the ECB may have finished its tightening cycle will provide a boost to the economic outlook. In any event, today's update lifts the German RPI to 13 and the RPI-P to 15, both values showing overall economic activity running slightly ahead of forecasts.

Current conditions are expected to fall to minus 80.0 in October versus September's minus 79.4 which was more than 5 points below expectations. Expectations (economic sentiment) are expected at minus 10.7 versus September's minus 11.4 which was nearly 4 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.