ZEW's December survey found analysts slightly less pessimistic about the current state of the German economy and also a little more optimistic about the near-term outlook. However, versus market expectations, the results are mixed.

The current conditions index improved from minus 79.8 to minus 77.1 This is its second successive gain and a 4-month high but still slightly weaker than the market consensus. By contrast, economic sentiment (expectations) beat forecasts with a 3.0 point increase to 12.8. This is its fifth straight gain and its strongest print since March.

In summary, while the steady upswing in sentiment suggests analysts are taking on board the increasing prospect of interest rate cuts and further falls in inflation next year, the low level of the current conditions gauge remains consistent with recession this quarter. Today's update puts the German RPI at 8 and the RPI-P a point firmer at 9. Both measures show overall economic activity running very modestly ahead of market expectations.

Current conditions are expected to rise in December to minus 76.0 versus November's minus 79.8, which was nearly 3 points lower than expected. Expectations (economic sentiment) are forecast at 9.2 versus November's 9.8 which, by contrast once again with current conditions, was nearly 7 points higher 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.