Carsten Brzeski's blog

Germany: Goldilocks economy

With the current assessment component close to all-time-highs and expectations still increasing, the May ZEW index points to continued strong growth

Financial markets are celebrating a goldilocks economy in Germany. Judging from the just released ZEW index, investors and analysts do not see an end to the current growth party in Germany any time soon. The ZEW index increased to its highest level since August 2015 and now stands at 20.6. The current situation component also increased, to 83.9, from 80.1 in April, getting close to its all-time-high from 2011.

Fading political risks, low inflationary pressure, low interest rates and comfortable stock markets are feeding investors’ optimism. Admittedly, the ZEW index has not had the best track record for predicting GDP growth but it has sent some important signals in the past when it came to turning points in the economy. In this regards, today’s ZEW is comforting. There is no turning point in sight. To the contrary, the combination of a high current assessment component and still increasing expectations keeps the traffic light for the German economy on green.