Economic sentiment in Germany witnessed an unexpected resurgence in December, reaching its highest point in four months. This optimism among financial market experts was fueled by the announcement of snap elections scheduled for February next year and the potential for additional interest rate cuts by the European Central Bank, according to a survey conducted by the ZEW think tank. The ZEW Indicator of Economic Sentiment for Germany showed a significant increase, rising to 15.7 points from 7.4 in November. This growth exceeded economists' expectations, who had predicted a decrease to 6.8 points. The latest figures represent the highest score since August, when the reading was at 19.2.
The sub-index that measures current conditions saw a decline, dropping to -93.1 from -91.4 the previous month, whereas economists had forecast a score of -92.6. ZEW President Achim Wambach remarked, "With the upcoming snap elections in Germany, along with expected economic policies favoring private investment and the prospect of further interest rate cuts, the economic outlook is improving."
Wambach further noted, "Our daily analyses indicate that following the European Central Bank's Governing Council meeting on 12 December, experts continue to anticipate more interest rate cuts next year." Additionally, Wambach highlighted that "the majority of survey respondents expect a stable or decreasing inflation rate in the eurozone, reinforcing this view." He also suggested that experts view the recent inflation rise as a temporary occurrence.
In contrast, results from the ifo survey revealed a more pessimistic outlook, primarily due to declining confidence among manufacturers. The ifo business confidence index decreased to 84.7 in December from 85.6 in November, contradicting economists' expectations of a near-steady result. The survey's current conditions index showed improvement, while the expectations measure dropped.
Economists are forecasting modest growth of below 0.5 percent for the German economy in the coming year. The ZEW survey also indicated that the eurozone's economic sentiment index improved by 4.5 points monthly, reaching a score of 17.0. However, the current situation indicator declined by 11.2 points, resulting in a new reading of minus 55.0 points.
