German investor confidence has swung into positive territory for the first time in months, according to the latest ZEW index. The closely watched barometer hit 10.5 in the March survey, up sharply from a negative reading of -8.1 in February. The jump signals that financial analysts and institutional investors now expect the German economy to improve over the next six months.
A Turn for the Positive
The ZEW index measures the difference between the share of optimists and pessimists among about 300 surveyed experts. A reading above zero means more respondents expect better conditions ahead than those who foresee deterioration. The March figure of 10.5 is the highest since early last year.
“The economic outlook for Germany has brightened considerably,” the lead researcher for the survey said. “Expectations are being boosted by falling inflation, rising real incomes, and the prospect of monetary easing.” That was the only direct quote provided in the release. The assessment was echoed by market participants who noted that export orders have begun to stabilize.
What the Survey Captures
The ZEW index is based on a monthly survey of financial professionals. It focuses on expectations rather than current conditions. A separate gauge of current conditions actually dipped slightly, from -81.7 to -80.5, indicating that the economy remains weak in the near term. But the expectations component drives the headline number.
Economists had forecast a reading of around 5.0, so the actual result surprised to the upside. The improvement was broad-based across sectors, with the manufacturing and export industries showing the biggest gains in sentiment. Services also improved, though at a more modest pace.
Investor confidence tends to be a leading indicator. If it holds, it could signal that Europe’s largest economy is bottoming out after a prolonged downturn. But the current conditions reading suggests a recovery isn’t here yet.
The next ZEW survey will be released in late April. That number will show whether this month’s optimism was a one-off or the start of a sustained shift.
