Germany’s economic outlook for February shows signs of improvement, with inflation easing and interest-rate cuts on the horizon, according to recent survey data.
Economic Sentiment Indicator Rises
The ZEW Indicator of Economic Sentiment, which measures the outlook over the next six months, increased by 4.7 points to 19.9 in February. This exceeded economists’ expectations of a smaller rise to 17.8, as reported by The Wall Street Journal.
Expectations of Interest-Rate Cuts
The improved sentiment is largely attributed to the belief that the European Central Bank will implement interest-rate cuts within the next six months. More than two-thirds of respondents hold this expectation due to declining inflation rates. ZEW President Achim Wambach expressed this sentiment on Tuesday.
Anticipated First Rate Cut
Money markets are already pricing in the possibility of a first rate cut at the central bank’s meeting in April, according to data from Refinitiv.
Concerns Remain for Current Economic Conditions
However, despite the positive outlook for the future, ZEW’s assessment of Germany’s current economic conditions decreased by 4.4 points to minus 81.7. This was even weaker than expected, as economists were predicting a decrease to minus 78.5. The continued concern over Europe’s largest economy’s weakness is reflected in these figures.
Challenging Economic Situation
“The German economy is currently facing challenges. Respondents’ assessment of the current economic situation has reached its lowest level since June 2020,” stated Wambach.
Slow Recovery Expected
Economists generally agree that a rapid rebound in early 2024 is unlikely, given that the German economy contracted by 0.3% in the final quarter of 2023.
