Investor confidence in Germany’s economy has rebounded for the first time in four months, fueled by the expectation of quicker interest rate cuts by the European Central Bank (ECB), according to a survey by the ZEW institute, Bloomberg reports.
The ZEW expectations index climbed to 13.1 in October, up from 3.6 in September, exceeding economists’ forecasts of a rise to 10. While this positive development is attributed to the anticipated decline in borrowing costs and stable inflation rates, a separate measure of current conditions unexpectedly worsened.
“The expectation of stable inflation rates and the associated prospect of further interest-rate cuts by the European Central Bank” are increasing optimis said ZEW President Achim Wambach. “Positive signals are also coming from Germany’s export markets.”
Despite the improved sentiment, German officials and a growing number of economists anticipate a contraction in gross domestic product (GDP) this year, citing weak foreign demand and consumers opting to save rather than spend due to higher incomes.
The country’s automotive industry, a key driver of the German economy, is facing particular vulnerability. Volkswagen, Mercedes-Benz, and BMW have all recently issued warnings about their profits.
However, Wambach suggests that the export situation may be showing signs of improvement. Analysts polled by Bloomberg believe Germany might have already experienced a mild recession in the third quarter, following a similar contraction in the second quarter. The official GDP estimate from Germany’s statistics office is expected by the end of October.
The ECB is set to deliver another interest rate cut this week, marking its third reduction this year. Following a series of reports indicating a worse-than-expected economic performance in the Eurozone, the ECB is anticipated to accelerate its easing policy.
While Eurozone inflation dropped below the 2% target for the first time since 2021 last month, the ECB has cautioned about potential acceleration towards the end of the year due to volatile energy costs.
