Germany ZEW economic sentiment indicator drops on looming global economic slowdown

Expectations for the German economy for February have been considerably lowered by investors, although lower than expected by consensus forecasts. The latest ZEW sentiment indicator was 1, which is much lower than the long-term average of 24.6 points and lower than the EA reading for February of 13.6. The examination for the current situation also declined slightly. According to ZEW, the looming slowdown of the global economy and uncertain consequences of the declining oil price are mainly responsible for the gloomy outlook.

The largest drop in investment confidence was reported in banks and insurance companies due to worries regarding credit default and a sharp decline in European bank equity prices in February. Fall in steel and utilities sectors was mainly because of declining commodity prices.

The automobile sector continued to rebound, increasing 6.8 points in February; however, the balance remains negative. Meanwhile, consumer goods and retail sectors exceeded construction with t he most positive assessment by investors. The service sector continued with the gradual positive trend.

Uncertainty regarding economic outlook in emerging markets and the US, along with declining oil prices and increasing geopolitical risks are weighing on German investor confidence. However, a strong labor market and an expansionary fiscal policy keeps the domestic economy strong.