The ZEW indicator for August paints a grim picture of Germany's economic prospects, marking its steepest decline in over two years. With a significant drop of 22.6 points to 19.2, the indicator signals waning confidence, akin to the sharp downturn seen in July 2022. The assessment of Germany's current economic situation also worsened, with the indicator plummeting by 8.4 points to a worrying minus 77.3.

The sharp decline was attributed to pervasive uncertainty fuelled by inconsistent monetary policies, disappointing U.S. economic data, and escalating geopolitical tensions in the Middle East. This uncertainty has not only rattled international stock markets but also dampened expectations for Germany's export-driven sectors.

The broader Eurozone is also feeling the strain, with economic sentiment dropping by 25.8 points to 17.9, a fall not seen since April 2020. However, a slight improvement in the Eurozone's current situation indicator, which rose by 3.7 points to minus 32.4, offers a faint glimmer of hope amidst an otherwise bleak economic landscape.

The ZEW monthly survey of financial experts in Germany is likely to show sentiment is deteriorating. The current conditions index is forecast at minus 74.5 in August, down from a better-than-expected minus 68.9 in July, when it improved from minus 73.8 in June. The report's expectations component (economic sentiment) is seen drifting down further to 34.5 in August from 41.8 in July and June's 47.5, both of which were below consensus.

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.