This morning the Center for European Economic Research (ZEW) published the results of its monthly business survey among economists, analysts and fund managers. In November, the mood among financial market experts was therefore further noticeably dampened. Compared to the previous month, economic expectations for Germany fell significantly from 56.1 to 39.0 balance points. Expectations for the euro zone also fell sharply again from 52.3 to just 32.8 points.
Since May, the financial market experts had assessed the macroeconomic situation steadily better. In view of the second wave of infections rampant in Europe and against the background of the significantly tightened government containment measures in November, the survey participants – unsurprisingly – rated the current economic situation as worse than in the previous month for the first time. The situation component, however, fell relatively slightly from -59.5 to -64.3 balance points.
Overall, the numbers reported today have developed in the expected direction, even if expectations have clouded over a little more than forecast. Nonetheless, this morning the German stock market was fairly unaffected by the poor sentiment data from the European economy. Yesterday’s announcement by Pfizer and BioNTech about the first findings on the effectiveness of their vaccine had fueled hopes for an efficient weapon in the fight against SARS-CoV-2 that would be available in the foreseeable future.
The news from Pfizer / BioNTech was received with euphoria on the financial markets yesterday and the DAX was catapulted from 12,700 points to well over the 13,000 mark within minutes. For the medium-term economic outlook, the prospect of overcoming the pandemic is much more important than the economic dip that can no longer be averted in the current winter half-year. Accordingly, the DAX was able to hold steady above the psychologically important mark of 13,000 points, at least this morning.
The ZEW survey, however, sheds more light on short-term developments, and because of the very dynamic infection process, there is again a harsher economic wind in the winter half-year. In the current fourth quarter, and thus earlier than we expected, there will be another dip in the economy; a slight decline in economic activity cannot be ruled out for the first quarter of 2021 either. At least until the weather conditions are more favorable in spring, it must be expected that certain restrictions will remain in place. Even if the extent of the economic dampening is in no way comparable to the slump during the first wave in March / April, the ECB will, as announced, launch a whole package of measures in December to stabilize the economy in the euro zone.
Conclusion: As expected, the economic sentiment of the financial experts continued to cool in November. The ZEW economic expectations fell to 39.0 points. The current situation was also assessed to be slightly worse than in the previous month for the first time. While the latest developments (Brexit, US elections) are more positive from a European perspective than in the risk scenarios, this is of little help in the short term. For the winter half-year, the second corona wave and the state containment measures dominate the (clouded) economic situation, which is why the ECB has announced a whole package of measures for December. The financial markets, however, are already looking further and are betting on overcoming the pandemic with a vaccine. The prospects are indeed good, so we expect the economy to continue to recover strongly in 2021.
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