The ZEW economic expectation index continues to trend downward in September as sentiment remains downbeat owing to a combination of factors, including scepticism concerning global GDP growth outlook and the ongoing sovereign debt crisis in the euro area. The breakdown on the index shows that profit expectations were particularly gloomy in the banking and insurance sectors, hence it is unlikely to see a turnaround of the index in the very near term. That said, as the ZEW is biased towards the financial sector’s sentiment (c.70% of the respondents fall within this category), we think that the it should be taken with the pinch of salt when it draws conclusions concerning the relative state of the real business cycle in the euro area. On this matter, we think that PMIs represent a better and more timely indicator.
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The economic expectation index fell by 5.7 points in September to -43.3, marking the seventh consecutive monthly decline while the current economic situation index fell by 9.9 points to +43.6 having plunged 37.1 points in August. The projected profit breakdown shows that the banking and insurance sectors declined to -66 and -55.9 in September, standing c.20 points above their trough in October 2008. Profit expectations in other sectors showed a less-pronounced declining path. For instance, the chemical/pharmacy, steel/metal, electronics, machinery and construction indices in September were at least 43 points above their respective all-time lows reached between the end of 2008 and the beginning of 2009.
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ECONOMICS RESEARCH | INSTANT INSIGHTS