Germany’s economic outlook appears to be improving in February, with inflation continuing to ease and the possibility of interest-rate cuts coming into view. Despite this positive news, fresh survey data shows that assessments of the current state of the economy are losing ground. The ZEW Indicator of Economic Sentiment over the next six months saw a 4.7-point increase from the previous month, reaching 19.9 in February. This exceeded expectations of a smaller rise to 17.8 and is seen as a positive development for the country’s economy.
This increase in sentiment is likely due to the fact that more than two-thirds of respondents expect the European Central Bank to implement interest-rate cuts over the next six months, given the falling inflation rates. Money markets are anticipating a first rate cut at the central bank’s meeting in April, according to Refinitiv data. However, the assessment of Germany’s current economic conditions dipped 4.4 points to minus 81.7, reflecting the continued concern over the weakness of Europe’s largest economy.
ZEW President Achim Wambach expressed his concerns, stating that the German economy is in a bad place. The assessment of the current economic situation has deteriorated to the lowest level since June 2020, indicating that there is still significant cause for concern. With the German economy contracting 0.3% in the final quarter of 2023, many economists believe a rapid rebound in early 2024 is unlikely. The future of Germany’s economy remains uncertain, and it will be important to monitor how these indicators develop in the coming months.