Expectations Collapse as War in the Middle East Unfolds

After a strong increase in the beginning of the year, expectations about Germany’s economic situation drop in March. At minus 0.5 points, they are below the previous month’s reading by minus 58.8 points. In contrast, the assessment of the current economic situation has slightly improved. The situation indicator for Germany is at minus 62.9 points, exceeding the value recorded in the previous month by plus 3.0 points.

“The ZEW Indicator has collapsed. The escalation in the Middle East spikes energy prices and increases inflationary pressure. This heightens the risk for the German economy that the emerging trend of economic recovery will slow down. How strong these effects will turn out depends on the intensity and the duration of the conflict. The financial market experts are sceptical that a quick resolution of the conflict will take place,” comments ZEW President Professor Achim Wambach, PhD on the current survey results.

There are scarcely any sectors for which the situation improves in March. The negative developments affect particularly the energy-intensive industries: the chemical and pharmaceutical industries (minus 43.6 points compared to the previous month), the automotive industry (minus 34.3 points compared to the previous month), and the mechanical engineering (minus 35.5 points compared to the previous month). The steel and metal production sector and the construction industry also report strong declines. In the latter case, this could also be related to the expectations of interest rate increases. Approximately 80 per cent of the respondents expect inflationary pressures to build up both in Germany and in the eurozone.

The expectations for the eurozone decline strongly in March, plummeting into negative territory and reading at minus 8.5 points. Compared to February, the indicator is lower by minus 47.9 points. The assessment of the economic situation deteriorates and is at minus 29.9 points, which is 16.3 points below the previous month’s reading.