ZEW Indicator of Economic Sentiment - Downward Movement Continues

The ZEW Indicator of Economic Sentiment for Germany fell by -12.2 points in June. Compared with +50.0 points in May, the indicator's current level of +37.8 points is only slightly above its historical average of +35.3 points.

Several reasons are responsible for the renewed decline of economic expectations. The high oil price, the European Central Bank's expected policy of increasing interest rates and the strong Euro against the US-Dollar are likely to have negatively affected economic expectations. Furthermore, the positive effect of premature purchases of consumer goods is expected to peter out within six months.

"In light of several irritations and undesirable developments in economic policy - such as the anti-discrimination law, the increase of the value-added tax and higher taxes for the rich - the disillusionment of the financial markets experts is continuing. Economic policy should not rest on its laurels, otherwise it will run the risk that there will be a complete change of mood", said ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

Due to the favourable development of exports and industry production, the financial experts surveyed again give a more favourable assessment of the economic situation in Germany. The corresponding indicator is up from +8.7 points to +11.9 points in June.

Economic expectations for the euro zone have also deteriorated in June. The indicator decreased by -10.4 points and now stands at 37.3 points. This month, the corresponding indicator for the current economic situation in the euro zone decreased slightly by -2.8 points to 15.5 points.

303 analysts and institutional investors participated in this month's ZEW Financial Markets Survey which is conducted on a monthly basis by the Centre for European Economic Research (ZEW), Mannheim. The participants were asked from May 29 to June 12, 2006 about their medium-term expectations concerning economic activity and capital markets. The ZEW Indicator of Economic Sentiment shows the balance between positive and negative expectations regarding future economic activity in Germany within a timeframe of six months. The horizontal line indicates the historical mean of the indicator.

Contact

Dr. Sandra Schmidt, E-Mail: s.schmidt@zew.de  

Matthias Köhler, E-Mail: koehler@zew.de