German Confidence At Pre-Crisis Level

The major commodity that was suddenly in short supply as the world fell into its gravest financial crisis since the Great Depression was confidence. Confidence is an intangible beast which is essential to the operation of the capitalist machine. Investors and businesses will not commit money or expand unless they are confident that their investments will yield a good return. In periods of low confidence, investors turn to safe havens such as precious metals, (secure!) government bonds, deposits and even currencies deemed to be best placed to ride out the storm. Businesses retrench, downsize and refrain from making risky investments in new plant or human resources until they believe the economic climate is more promising.

With such a lot at stake, surveys which try to measure “confidence” are keenly watched. The well-regarded ZEW index (Zentrum fur Europaische Wirtschaftsforderung or Centre for European Economic Research) is an important tool. The latest reading of the Economic Sentiment for Germany puts investor confidence at its highest level for 32 months. This is the best figure since May 2010, when the European sovereign debt storm broke. Investor confidence has surged by 24.6 points in January – the index has a neutral point of 0 and swings between -100 to +100. The survey assesses investor sentiment for the next six months.

A similar survey for investor sentiment across the Eurozone also point to a significant improvement in investor sentiment over the next two quarters; the index has rallied 23.6 points and stands at 31.2. However, both sets of results for the current month only show modest improvement. German current investor sentiment rose 1.4 points to stand at just 7.1; whereas investor sentiment in the Eurozone stands at minus 75.3; having rallied by 4.6% for the month – clearly there is a long way to go still.