In February, Germany's economic sentiment saw considerable growth to reach its highest point in a year, exceeding expectations. This rise can be attributed to predictions by market experts of potential interest rate decreases in the next six months due to slowing inflation, according to data from the ZEW research group.
The ZEW Indicator of Economic Sentiment witnessed a substantial increase from 15.2 in January to 19.9 in February. This is the highest it has been since February 2023, where it was at 28.1 and surpassed economists' forecast of 17.5.
On the other hand, the evaluation of the economic situation saw a significant decline, marking the lowest point since June 2020. The corresponding index fell from -77.3 the previous month to -81.7. Projections had anticipated a modest decline to -79.
ZEW President Achim Wambach described the current state of the German economy as poor. Furthermore, two-thirds of the survey participants believe that the European Central Bank will move to lower interest rates over the next six months due to decreasing inflation.
When questioned about the likelihood of rate cuts by the US Federal Reserve, Wambach stated that approximately three-quarters of respondents expected imminent cuts. Meanwhile, investors' confidence in the euro area grew stronger in February, with the economic confidence index rising by 2.3 points to 25.0 and the current situation index increasing by 5.9 points to reach -53.4.
ING economist Carsten Brzeski viewed the uplifted German economic morale as a sign of light at the end of an elongated tunnel. However, he noted the potential for cyclical improvement in the German economy remains too insufficient to counteract structural weaknesses. Brzeski concluded that the recent data does not significantly alter the assumption of another year of recession.
