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German ZEW: Finally some light at the end of the tunnel - ING

FXStreet (Delhi) – Carsten Brzeski, Research Analyst at ING, notes that the just released ZEW index for the German economy increased to 10.4 in November, from 1.9 in October; the first increase since March this year.

Key Quotes

“At the same time, the current assessment component dropped for the second consecutive month and now stands at 54.4, from 55.2 in October. The hope for new ECB action in December and consequently a weaker euro have clearly improved investors’ optimism.”

“Last week’s GDP data showed that the German economy is currently only driven by consumption. In fact, the economy is currently experiencing the two faces of low oil prices. On the one hand, consumers see their disposable income increasing and, backed by strong employment figures, higher nominal wages and low interest rates, are finally spending it. However, on the other hand, weaker demand from oil-exporting countries is clearly hurting German exporters and industrial production.”

“It is hard to extract any strong guidance from today’s ZEW index for the future path of the economy. In fact, both components have a rather poor track record when it comes to predicting GDP growth. . Nevertheless, the ZEW index has sent some important signals in the past when it came to turning points in the economy.”

“In this regard, the discrepancy between the current assessment component and expectations is remarkable. This discrepancy had reached a new temporary peak in the late summer but has now narrowed somewhat over the last two months, suggesting that a standstill of the economy should not be feared.”

“Meanwhile, the entire Eurozone is digesting the possible economic impact from the terroristic attacks in Paris last Friday. While the European Commission will present its opinion on the 2016 national budget plans this morning, the Paris events have made this a very outdated exercise.”

“With France invoking Article 42.7 of the Lisbon Treaty calling for all other EU member states to use their obligation “of aid and assistance by all the means in their power” and a likely increase in defense and security spending, the Security Pact has practically taken over from the Stability Pact.”

“It is impossible to imagine that the Commission will insist on achieving the former fiscal targets in the current situation. At the same time, the Paris events have already sharpened the political discussion in Germany. The coming weeks will show whether support for chancellor Merkel’s position in the refugee crisis can be maintained or not.”

“Earlier today, an opinion poll showed that the anti-euro and anti-immigration party AfD currently ranks as the third largest political party in Germany for the first time ever. In recent weeks, chancellor Merkel had already lost the top as Germany’s most popular politician to finance minister Wolfgang Schaeuble. A clear sign that the political landscape will become rather more than less challenging.”

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