Sound bites: German ZEW overshadowed by Eurozone debt crisis in March

Germany’s economic sentiment looks like it is peaking, with the ZEW index only edging up to 48.5 in March after the sharp rise to 48.2 in February. It looks like the Eurozone debt crisis is taking its toll again. German business confidence cannot shrug off the deepening Eurozone crisis much longer. The Eurozone is mired in recession, governments keep tightening the fiscal screw, and contagion risks are starting to spread again – this time from Cyprus. The peripheral economies are sinking fast and starting to pull core countries like Germany and France into the downdraught. The German economy might be showing more relative buoyancy right now, but with so much demand governed by economic fortunes elsewhere in the Eurozone, the longer term prospects do not look encouraging. ZEW is a sentiment gauge and as a result tends to be very fickle, sensitive to negative influences inside and outside of the German economy. These are not looking good. Domestic economic indicators are slowing. The latest German industrial orders data were ominous with foreign demand dropping sharply, largely thanks to recession in the Eurozone periphery and slowdown in the core countries. If the latest spell of contagion risks escalate from drama into crisis, then Germany’s ZEW and IFO business confidence surveys will be heading south again, foreshadowing Germany’s return to its fourth recession since the start of the new millennium. The bottom line for the ECB is that it must keep the monetary floodgates wide open and rates need to go down again. The ECB cannot afford for its only bright hope for recovery to fall back into recession shadows again. This is another nail in the euro’s coffin set against the background Cyprus risks.

Highlights

• ZEW INSTITUTE MARCH GERMAN ECONOMIC SENTIMENT INDEX 48.5 VS 48.2 IN FEB (POLL 48.0)
• MARCH GERMAN CURRENT CONDITIONS INDEX 13.6 PTS VS 5.2 PTS IN FEB (POLL 6.0)
• ZEW - POLITICAL SITUATION IN ITALY, CYPRUS RESCUE PACKAGE INCREASED RISK OF EURO ZONE DEBT CRISIS WORSENING
• ZEW - EURO ZONE DEBT CRISIS REMAINS BIGGEST RISK