ZEW survey: Second wave acts as a brake on euphoria – Nord LB column

This morning the Center for European Economic Research (ZEW) published the results of its monthly business survey among economists, analysts and fund managers. In October, the mood among financial market experts was therefore noticeably dampened. Compared to the previous month, the economic expectations for Germany decreased significantly from 77.4 to 56.1 balance points. The upward trend of the previous months was also not continued in the expectations for the euro zone. On the contrary, the indicator also decreased noticeably from 73.9 to 52.3 points.

At the same time, the survey participants believe that the current economic situation has improved further. The situation component climbed from -66.2 to -59.5 balance points, the highest value since the beginning of the pandemic in March. While this roughly corresponds to the consensus forecast by Bloomberg, the analysts and economists surveyed only anticipated a moderate decline in expectations. In this respect, today’s figures from Mannheim must be seen as a negative surprise. The German stock market was initially unimpressed, and has been showing almost astonishing strength for weeks and months in the face of the Corona crisis. Despite the weaker than expected economic data, the DAX remained well above the 13,000 point mark it had climbed last week.

The reasons for the more cautious economic assessment of the financial market experts are obvious. Above all, the significantly accelerated infection rate in large parts of Europe, which can justifiably be described as the second wave, has fueled concerns about new burdens on economic activity. In France, even a second lockdown is no longer completely ruled out. This is also reflected in the fact that the economic situation for the euro zone is rated as significantly worse at -76.6 points in relation to Germany. In addition, the improvement on the previous month was comparatively weak.

The building up second wave acts like a brake on the euphoria of the economy. A record rate of growth is expected for the third quarter in almost all large developed economies as a result of the catch-up effect. When looking ahead, darker clouds are currently dominating the picture. However, after seven months of experience with the coronavirus pandemic, there is cause for hope. With more intelligent containment measures and with discipline in the relatively simple rules of conduct, economic activity should tend to continue to be made possible and not, as in spring, also paralyzed.

In addition to the corona crisis, other uncertainty factors such as the upcoming US elections or the unsatisfactory course of the Brexit negotiations are currently weighing on the mood. These burdens on sentiment in autumn were predictable and justified our “Swoosh” economic picture. We are therefore sticking to our growth forecast for Germany of -5.8% (2020) and + 4.3% in 2021 for the time being and do not expect any sustained upward movement in European interest rates. Rather, the ECB is likely to consider another expansion of the PEPP.

Conclusion: The economic sentiment of the financial experts deteriorated noticeably in October. The ZEW economic expectations fell by more than 20 balance points to 56.1 points. US elections, Brexit and the second corona wave are currently acting like a brake on euphoria. These effects are the reason for our “swoosh economic picture” for Europe, ie a considerable flattening of the recovery after the catch-up effect in the third quarter. We are therefore sticking to our economic and interest rate forecast. The ECB is also under pressure due to the very weak inflationary trend to expand the PEPP again soon.

Disclaimer: This text is a column of the North LB. 4investors is not responsible for the content of the column and therefore does not necessarily have to agree with the opinion of the 4investors editorial team. Any liability and claims are therefore expressly excluded by 4investors!


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