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Investors trust the German economy more than expected

According to data from the European Economic Research Center, which compiles the ZEW Index of economic sentiment in the Federal Republic of Germany, investor confidence in the economy of the strongest country of the European Union and the fourth largest economy in the world has risen above analytical estimates. The ZEW index data was reported before noon on Tuesday, 12 November, 2019, and subsequently the foreign exchange (Forex) market reacted to this fact, when the single European currency euro (EUR) stabilized, with a slight strengthening, its exchange rate against other world currencies and especially against the US dollar (USD).

On 13 November, 2019, at 8:34 am CET, the global currency pair EUR/USD traded on the Forex market at a mutual exchange rate of US$ 1,1009 per EUR with the daily appreciation of EUR by + 0.02% against the USD. However at the same time, the single European currency, the euro (EUR) has no longer maintained its pace of growth against the British pound (GBP) and fell by -0.04%, trading at GBP 0.8565 per EUR. According to financial strategists’ estimates, it is expected that the US dollar (USD) will again appreciate against the euro by Wednesday or by the end of this 46th business week.

The ZEW’s Economic Sentiment Indicator is calculated by the European Economic Research Center on a monthly basis, based on a survey from approximately 300 experts from banks, insurance companies and corporate finance departments. Survey participants are asked about their expectations regarding the economy, inflation rate, interest rates, stock markets and oil prices for the next six months. The index reflects the sentiment of institutional investors. The growth of the index may have a positive impact on euro quotations. According to data from Tuesday, 12 November, 2019 the ZEW index, sometimes called the “expectation index” rose to a value of -2.1 points from its previous value from October 2019, which was -22.8 points. At the same time, analysts and financial economists expected only a slight improvement of about 0.5 points to a value of -22.3 points, and this current result was not only a positive surprise for analysts, but especially for financial market traders.

According to economic reporters along with financial strategists, this more optimistic outlook for the German economy and the associated growth in positive investor sentiment is the result of a much more optimistic outlook for the global economy regards to US-China trade negotiations. Recent developments thus give real hope that the two largest global economies will settle their trade relations and trade agreement will be reached between the United States and China. Recent information from economic correspondents even suggest that this year a meeting could be held in early December somewhere in Europe between Mr. Trump and Mr. Xi, on the occasion of President Trump attending the London NATO meeting that will take place on 3-4 December, 2019 in the UK.

According to world economists the overall state of the German economy in comparison with previous years is definitely not in good shape. German gross domestic product (GDP) fell by 0.1 percent in the second quarter of 2019 compared to the first three months of 2019. If it continues to fall in the third quarter of 2019, it would mean that Germany will be in a so-called technical recession. This is defined as two quarterly declines in GDP in a row.

Photo by AC Almelor on Unsplash

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