It looks like German ZEW economic sentiment is throwing off the recent Cyprus crisis wobble and starting to show signs of stabilising. In the last few months there has been a clear disconnect between what the German business surveys and the real economy data and markets have been saying. German business sentiment surveys like ZEW and IFO have been tapping into a deep vein of negative energy due to the Cyprus crises. Meanwhile, German real economy data like industrial orders and production and trade data appear to be much more upbeat as the German recovery starts to get into its stride again.
Germany seems to have avoided recession in the first quarter by the skin of its teeth and the positive forward momentum seems to have re-engaged. The German equities markets now seem to be deriving a lot more positive drive from the hard data rather than the surveys. It is probably time for them to come back into synch again and for the surveys to start reflecting the positive economy story rather than the old news coming out of the Eurozone debt crisis.
It looks like the Eurozone is over the worst of the debt crisis for the time being. While the Eurozone authorities seem to be succeeding in managing the short term disturbances like Cyprus, it gives the markets an opportunity to focus on more of the positive aspects of the recovery story coming out of Germany. The Eurozone is not out of the woods by any stretch of the imagination. As the explosion of central bank money from the US and Japan continues to heal the global economic picture, the German recovery should be able to harness more upward momentum as the export outlook brightens.
Germany and the troubled Eurozone economies are poles apart in terms of where they are in the recovery cycle and Eurozone policymakers should not confuse them. While Germany continues to pull away, the rest of the Eurozone still needs a lot more stimulus efforts from the ECB and government fiscal policies before the Euro area is off the recession rocks.
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