A key indicator shows that Germany’s economic sentiment dived in August, with rising investor pessimism about the country’s growth, and implications for the entire Eurozone.
The negativity is being driven by a slowdown in global trade slowdown, disappointing data from the U.S. economy, turmoil in the stock market, and tensions in the Middle East, according to experts.
The ZEW Economic Sentiment Index, which is based on interviews with up to 300 experts from banks, insurance companies and financial departments of selected corporations to gauge their assessments and forecasts concerning the economy, inflation rates, interest rates, stock markets and more, is a leading indicator for the German economy.
The Index recorded a dramatic fall from 41.8 points in July to just 19.2 points in August, against an expected fall to 32.0 expected by a poll of analysts by Reuters. “The economic outlook for Germany is breaking down,” ZEW president Achim Wambach said.
“In the current survey, we observe the strongest decline of the economic expectations over the past two years,” he added. “Economic expectations for the eurozone, the US and China also deteriorate markedly.”
He said that expectations for export-intensive German sectors were therefore in decline, and that economic expectations are still affected by high uncertainty.
Wambach pointed to the recent turmoil in international stock markets as an expression of that uncertainty. Analysts said the falling index reflects growing pessimism about Germany’s economic outlook and broader concerns for the eurozone.
The ZEW Index showed that the eurozone’s broader economic sentiment also declined, with the corresponding indicator dropping from 43.7 to 17.9 points, the lowest since February and well below the expected 35.4.
The drop of 25.8 points represented the most severe monthly deterioration in the bloc’s economic morale since April 2020. According to EuroNews, “despite the dire economic sentiment data, market reactions were relatively muted. The euro remained stable at 1.0920 following the release of the ZEW figures.”
For decades, Germany was considered a manufacturing powerhouse and one of the dominant economies in the eurozone. Rocketing energy prices, driven by Germany’s net-zero energy policy, Energiewende as well as the war in Ukraine have caused a rise in expensive energy imports with severe impacts on manufacturing and engineering.
Matthias Zachert, CEO of German industrial giant, Lanxess, has said that “deindustrialization [of Germany] has begun”, with German industry and business leaders telling Der Spiegel that “prosperity losses of an extent not previously imagined” could be blamed on the elimination of “ cheap energy” in the country.