German Economic Sentiment Strengthens On Favourable Energy Markets

Economy

Germany’s economic sentiment turned positive in January for the first time in nearly a year, underpinned by more favorable energy market conditions, government energy price caps, and a better export situation as a result of China’s current measures to lift Covid pandemic restrictions, survey results from ZEW research institute showed on Tuesday.

The ZEW Indicator of Economic Sentiment surged 40.2 points to +16.9 in January. The score was forecast to climb slightly to -15.0.

Further, the indicator turned positive for the first time since February 2022, the month in which the war in Ukraine began.

“The more favorable situation on the energy markets and the German government’s energy price caps have contributed to this in particular,” ZEW President Achim Wambach said.

Further, China’s decision to lift its COVID restrictions is improving export conditions for Germany.

Hence, energy-intensive and export-oriented industries expect higher earnings in the near future.

“The prospect that the inflation rate will continue to fall has brightened expectations for the consumer-related sectors,” Wambach said on current expectations.

The assessment of the current economic situation in Germany has also improved further, but only slightly, the Mannheim-based ZEW said. The corresponding index now stood at -58.6 in January, 2.8 points higher than in the previous month. The expected reading was -58.0.

“Economic sentiment in Germany improved further at the start of 2023 adding to the signs that the economy will hold up better than we feared,” Capital Economics economist Franziska Palmas said.

“But with underlying price pressures still rising, tight monetary policy will become an increasing drag on the economy this year.”

Financial market experts’ sentiment concerning the eurozone also improved very strongly in January. The corresponding index advanced from 40.3 to 16.7. The current conditions indicator stood at -54.8, up 2.6 points.

The eurozone’s inflation expectations declined by 4.4 points in January, and currently stand at -83.7 points.

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