Germany’s Economic Outlook Shows Surprising Improvement

Germany’s economic outlook took an unexpected turn for the better in January, thanks to expectations of lower interest rates in 2024. According to a monthly survey published on Tuesday, the ZEW Indicator of Economic Sentiment over the next six months rose by 2.4 points to reach 15.2. This positive development exceeded economists’ predictions, who had anticipated a decline to 12.0.

President of ZEW, Achim Wambach, highlighted the reason behind the improved expectations: “Economic expectations for Germany have improved again. This is because now more than half of the respondents assume that the European Central Bank will make interest-rate cuts in the first half of the year.”

Despite experiencing a recent increase in inflation rates, with Germany at 3.7% and the eurozone at 2.9%, these developments had no impact on expectations regarding monetary policy.

In contrast, when it came to ZEW’s assessment of Germany’s current economic conditions, there was only a marginal change. It declined by 0.2 points to reach minus 77.3 points, falling short of expectations that it would rise to minus 76.5.

The release of this latest survey closely followed the announcement of preliminary data showcasing a 0.3% contraction in the German economy during the fourth quarter of 2023. High inflation continues to put pressure on consumer spending, while weak global demand for goods hampers the manufacturing sector — a key aspect of Germany’s economy.

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