Germany’s Economic Outlook Improves in February, but Uncertainty Looms Large: Survey and Central Bank Rate Cuts

Despite current weakness, the economic outlook in Germany is improving.

Germany’s economic outlook is improving in February, with inflation continuing to ease and the possibility of interest-rate cuts coming into view. Despite this positive news, new 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.

However, despite this positive sentiment, 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. Yet, despite this potential relief on interest rates, Germany’s current economic assessment dipped 4.4 points to minus 81.7 in February, reflecting continued concern over Europe’s largest economy’s weaknesses.

ZEW President Achim Wambach expressed his concerns about Germany’s economic situation stating that it is still not good enough “The assessment of current economic conditions has deteriorated to its lowest level since June 2020.” With Germany contracting by 0.3% in Q4 2023 many economists believe that a rapid rebound in early 2024 is unlikely – leaving uncertainties about Germany’s future economy looming large.

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