German Economic Sentiment Turns Negative In May

Germany’s investor confidence turned negative in May for the first time in five months amid concerns over further interest rate hikes by the European Central Bank and the uncertainty on the global markets over worries of a US debt default, survey results from ZEW showed on Tuesday.

The ZEW Indicator of Economic Sentiment dropped notably to -10.7 in May from +4.1 in April. The score was forecast to fall to -5.3.

The indicator has turned negative for the first time since December 2022.

“The financial market experts expect the economic situation, which is already not good, to deteriorate over the next six months,” ZEW President Achim Wambach said.

“As a result, the German economy could slip into a recession, albeit a slight one.”

Expectations that the ECB will raise interest rates further are one reason for the decline in sentiment, Wambach said.

The possibility of a US default in the next few weeks also increased uncertainty about the international economy, the ZEW chief added.

The current economic situation index declined by 2.3 points to -34.8 in May. The expected reading was -37.0.

Financial market experts’ sentiment concerning the euro area also deteriorated significantly in May. The corresponding index fell by 15.8 points  and stood at -9.4. Meanwhile, the situation indicator for the eurozone rose by 2.7 points to -27.5.

“Today’s ZEW sends a worrisome message: three consecutive drops are a new trend, a trend in the wrong direction,” ING economist Carsten Brzeski said.

However, this does not mean that the German economy will be stuck in recession for the next couple of years, but it does mean that growth will remain subdued at best and that the flirtation with stagnation will continue, the economist said.

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