Europe's ZEW index falls in July

There are other sentiment and economic strength indices in addition to the PMI indices from S&P Global!  One of these in the Euro Zone and some of its member countries are the ZEW indices:

The ZEW Indicator of Economic Sentiment is a simple sentiment indicator created out of the monthly ZEW Financial Market Survey. The ZEW Financial Market Survey is an aggregation of the sentiments of approximately 350 economists and analysts on the economic future of Germany in the medium term. ZEW stands for Zentrum für Europäische Wirtschaftsforschung, which translates to the Center for European Economic Research. [Source: Investopedia]

The ZEW Sentiment Index has a reliable six-month lead on economic activity; the PMI index is intended to measure current economic activity rather than future activity, and they survey industry rather than economists.

The ZEW index fell again in July.  (The PMI is only up to June) Note how it also spiked over the early months of this year, and has been retreating since.  

As usual, you might get a clearer picture if you click on it.  Don't ask me why Blogger does it this way.

ZEW index rises again

The ZEW index for Germany has had a reliable leading relationship with German  GDP over several decades.  It rose again in May, pointing towards an economic recovery by December this year (it leads GDP  by 6 months).  An argument for a V-shaped recovery.  Of course it may be wrong, this time.  But it may not.  My instincts are that the global recovery will be laggard and muted.  This indicator suggest that in Germany at least, it will not.  (German GDP not up to date, but it's late and I'm tired.  Dass ist doch das Leben.)

A rebound in Germany in Q2

The ZEW survey in Germany provides an excellent guide to the behaviour of economic growth in Germany six months hence.  The most recent movements in this index are interesting.  It started to recover earlier this year as world economic growth began to pick up, fell sharply with the coronavirus and then more than reversed its fall in April as participants in the survey became convinced that economic growth would resume as lockdown is removed.  In the chart, the ZEW index is plotted 6 months after its actual date, to give us a six months' indication of GDP growth.  This quarter's German GDP will be sharply negative because of the lockdown.  What this indicator says is that a big rebound in Q2 is likely.  Meself, I'm not that sure the rebound will be that big, even though I'm sure GDP growth Q-on-Q in the second quarter will be positive.