Investment sentiment in Germany rebounded in November, a survey found on Tuesday, adding to signs that Europe's biggest economy is stabilising in another piece of positive news for the eurozone. After hitting a 22-month low in October, the widely watched investor confidence index calculated by the ZEW economic institute was back in positive territory in November, jumping to 11.5 points from minus 3.6 points the previous month, ZEW said in a statement.
The increase was much bigger than analysts had expected. The barometer "has increased for the first time in 2014. The recent growth figures for the euro area suggest that the economy is stabilising, which contributed to the indicator's increase," said ZEW president Clemens Fuest. "However, the economic environment remains fragile, not least due to ongoing geopolitical tensions," he cautioned. Data last week showed that Germany escaped recession in the third quarter, when gross domestic product (GDP) expanded by a modest 0.1 percent following a contraction of 0.1 percent in the preceding three months. For its survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.
The sub-index measuring financial market players' view of the current economic situation in Germany inched higher by 0.1 points to 3.3 points in November. A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable. As a result, analysts were cautious about reading too much into the November data. "It is too early to call for a trend reversal," said Natixis economist Johannes Gareis.
Nevertheless, "the higher ZEW numbers support the notion that the German economy is stabilising after several months of poor hard and soft data." Gareis said he is now pencilling in GDP growth of 0.2 percent in the fourth quarter. Capital Economics expert Jennifer McKeown also said the rise in the ZEW index "is a relief, although the index remains at a fairly low level."
The increase "probably reflected the softening of the euro, an easing of concerns over geo-political factors" and hints of further policy moves by the European Central Bank, she said. "However, we would be wary of placing too much weight on one monthly increase in a volatile survey. On balance, the survey suggests that Germany will soon be leading the eurozone recovery again, but with modest growth that will fail to ensure a meaningful revival in the rest of the region," McKeown said.
Berenberg Bank economist Rob Wood agreed. "Careful, the ZEW is volatile. One swallow does not a summer make and one improvement in the ZEW survey does not a turnaround in Germany make," he warned. "We want to see a couple more monthly gains before concluding that the trend has decisively changed." Postbank economist Thilo Heidrich said the German GDP data last week "show that the recovery in both Germany and the eurozone is fundamentally intact. "We expect growth to continue in the coming months, but it will remain sluggish for now," he said.
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