MNI DATA PREVIEW: German Apr ZEW To Maintain Recent Trend

By Irene Prihoda & Jaspreet Sehmi

     LONDON (MNI) - With some tentative signs of stabilisation feeding through

into what is still a very mixed picture for the German economy, April's ZEW

Survey will provide an insight into the state of play at the start of the second

quarter. In March, the 'Current Situation' (CS) index fell back for a sixth

consecutive month, while the 'Economic Sentiment' (ES) index saw its strongest

gain since last August. 

     Both the MNI median and Bloomberg consensus projections for April point to

another fall in the CS index (to its weakest level since Nov 2014) and a

4.1-point rise in the ES index, to take it into positive territory for the first

time since Mar 2018.   

     No Clear April Forecast Bias: MNI's analysis of actual vs. consensus

historical data reveals that over the past decade, there has been no clear

forecast bias, with markets approximately equally likely to underestimate or

overestimate both the Current Situation and Economic Sentiment. On average, the

extent of the underestimates tends to be greater, with the average forecast

differentials (Actual - Consensus) for the Current Situation and Economic

Sentiment components standing at +3.1 and +1.2 points respectively. 

     Divergence Leading To Convergence: Since Nov 2018, there has been a notable

divergence in the performance of the two ZEW components, with the CS index

consistently falling and the ES index consistently rising. Markets expect this

trend to continue in April. While the two indices are not yet expected to cross

paths - something they last did in Mar 2015 - if the current pattern continues,

they are set to do so in the coming few months. 

     Current Situation Is Down But Not Out: While the Current Situation index

has been on a downward path since Jan 2018 and is expected to fall further in

April, it remains comfortably above its series average of -5.2. This reflects a

fundamentally healthy German economy. Favourable credit conditions, fiscal

support, record-low unemployment and falling inflation are helping to spur

investment and consumption. 

     Elevated Uncertainty = Muted Expectations: While expected to edge higher

for a sixth month running in April, the ES index is nonetheless set to remain

far below its series average of +22.2. Further dovish rhetoric from the ECB,

some positive hard data surprises in the Eurozone and signs that China's

stimulus measures are starting to pay off, are all likely to have boosted

investors' outlook. However, the extent of any further gains in the ES index

will likely remain limited in the short-term, as a number of factors continue to

cause concern, including Washington's latest threats to impose trade tariffs on

EU goods.

     April Sentix Supports Mixed ZEW Development: The more timely Sentix

Economic Index for Germany - which is strongly correlated with the ZEW survey -

saw its Current Situation component lose further steam in April while its

Expectations component (equivalent to the ZEW Economic Sentiment index) hit its

highest level since Mar 2018. These developments support consensus expectations

for a further dip in the ZEW CS index and another rise in the ES component. 

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

[TOPICS: MAGPR$,MAXPR$,M$E$$$,M$G$$$,M$X$$$]