ZEW Economic Sentiment Reflects Growing Optimism in Germany and the Euro Area
- Germany's economic sentiment has hit the highest level since March 2022, with improvements in the current situation assessment.
- Eurozone economic sentiment and current assessment also rise, consistent with steady improvements since Q4 2023.
Germany's Economic Sentiment and Current Situation
The ZEW Economic Sentiment for both the Euro Area (EA) and Germany in May 2024 reflects a growing optimism in the economic outlook, with indicators showing a continued upward trend. In May, Germany's economic sentiment marked the highest level since March 2022, the ZEW economic sentiment indicator for Germany rose to 47.1, a 4.2-point increase from April. This positive change is due to strong economic growth in the first quarter of 2024. Additionally, the assessment of the current economic situation in Germany also improved, with a 6.9-point increase to -72.3. This marks the tenth rise in confidence among financial experts and indicates that Germany's economy is on a path to recovery, with expectations for increased domestic activity and demand for exports, particularly to the Eurozone and China.
Euro Area Economic Sentiment
Similarly, the wider Eurozone's economic sentiment indicator and current assessment have also experienced an uptick from April. The Eurozone ZEW economic sentiment rose to 47.0, indicating a positive outlook for the region. This is consistent with the steady rise in the ZEW Economic Sentiment since the fourth quarter of 2023, reflecting marked improvements in business and economic activities.
Factors Influencing Sentiment
The increased optimism in Germany is particularly evident in the expectations for domestic consumption, construction, and machinery sectors. The European Central Bank (ECB) has played a role in this economic environment by keeping key interest rates unchanged at 4.50% for the fifth meeting, which may have contributed to the stability and positive sentiment.
Implications for the Euro
The rise in economic sentiment could provide a lift for the euro. The ECB is also expected to start cutting borrowing rates, with the first 25 basis point move likely in June.
The May 2024 ZEW Economic Sentiment indicators for both Germany and the Euro Area suggest a more favorable economic climate, with signs of recovery and increased confidence. This positive sentiment is supported by strong Q1 growth and stable interest rates, which works well for the future economic performance of the region.