Buoyant German investor morale brightens outlook for 2017

Monthly economic sentiment index rises in Germany in January

The BMW headquarters  in Munich. The German economy grew 1.9%  in 2016, the fastest pace in five years. Photograph: Michael Dalder/Reuters

The BMW headquarters in Munich. The German economy grew 1.9% in 2016, the fastest pace in five years. Photograph: Michael Dalder/Reuters

 

The mood among German analysts and investors improved slightly in January, with rising expectations “a leap of faith for 2017” after a stronger-than-expected economic performance by Germany last year, the ZEW economic institute said on Tuesday.

Mannheim-based ZEW said its monthly economic sentiment index in January rose to 16.6 points from 13.8 points the previous month. The Reuters consensus forecast was for a rise to 18.3.

A separate gauge measuring investors’ assessment of the economy’s current conditions rose to 77.3 points from 63.5 in December. This compared with the Reuters consensus forecast which predicted a rise to 65.0.

“The slight increase of the ZEW indicator of economic sentiment is mainly due to the improved economic situation across European countries,” ZEW president Achim Wambach said.

“The fairly good preliminary figures recorded for the development of German GDP last year, as well as for industrial production of the euro zone in November 2016, came as a surprise to many.

“This improvement in expectations can thus also be seen as a leap of faith for 2017,” he added.

Five years

Low interest rates and a record influx of refugees fuelled German household and state spending in 2016, helping to compensate for weakening exports, long the pillar of an economy where manufacturing makes up about a fourth of output.

While the ZEW numbers missed expectations, the overall direction was seen by analysts as positive. ING, for example, noted that “the ZEW has been one of the most pessimistic indicators of German activity over recent months”.

The growth momentum in Germany is expected to continue this year as rising private and state spending help Germany cement its position as the locomotive of the euro zone.

Upward revisions

Analysts polled by Reuters expect economic growth to slow to 1.4 per cent in 2017 and 1.5 per cent in 2018. However, a “golden decade” of growth and prosperity in Germany risks fading if the government fails to heed calls to increase investment and pursue structural reforms that lay the foundations for a new phase of economic expansion. – (Reuters)