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• UPDATE 2: German ZEW Improves, But Economy Likely to Worsen Posted:14/07/2009 14:36 GMT by NeedToKnowNews
  Germany's key indicator on economic sentiment, the ZEW survey, improved in the run-up to the holidays, but economists at the think-tank cautioned that Germany's recession is not over and that its economy could could reach a low point around the middle of 2009. The ZEW's December economic sentiment indicator rose unexpectedly to -45.2 against estimates of -56.0. The headline was a big surprise given the slew of reports showing weakness in just about every corner of Europe's largest economy and projections that its GDP growth rate could fall more than one percent next year. "The December improvement comes to us as a significant surprise," said IDEAglobal analysts in a research note. "This is especially in light of the fact that Germany is on the verge of facing the worst economic crisis since reunification, with the GDP growth rate likely to tank between 1.4% and 0.9% in 2009." The euro/dollar rose in reaction to the headline figure. The euro/dollar briefly popped up to the $1.29 area and Germany's main stock index recovered to nearly flat, but neither gained much more buying momentum as ZEW economists immediately cautioned against over-optimism. "The German economy is slipping deeper into the recession," said ZEW President Wolfgang Franz. "The government is well advised to launch a growth package, which, for example, includes infrastructure projects." Germany's current economic conditions look bleaker than ever in December, with the current situations indicator falling more than expected to -64.5. On average, analysts were anticipating it to slip to -61 from -50.4 in November. Michael Schroeder, ZEW's head of financial markets, said more than half of those polled by the ZEW expect Germany's recession to deepen into the first half of 2009 and to hit a low point somewhere in the middle. Expectations that European governments would provide fiscal stimulus had added to some optimism in the main headline figure. A majority are expecting the European Central Bank (ECB) to cut rates again in the next six months. "All in all, we see this ongoing improvement in the German sentiment as very short-lived," said IDEAglobal analysts. "Although the aggressive ECB easing cycle might have boosted market confidence in the short term, its ramification on the real economy will come with a significant lag. "