The economic outlook for Germany took a turn for the worse in July, surpassing expectations and fueling concerns for the largest economy in the eurozone.
According to the ZEW institute, the index of economic sentiment for Germany dropped to minus 14.7 in July, down from minus 8.5 in June. Economists had anticipated a decrease to minus 10.0, making this decline even more pronounced.
This steep fall into negative territory suggests that the financial market is anticipating a further deterioration in the economic situation by the end of 2023, explained ZEW President Achim Wambach.
One of the primary drivers of declining sentiment is the rising interest rates in both the eurozone and the United States. Furthermore, important export markets are showing relative weakness, contributing to the negative outlook.
In June, the European Central Bank increased its key interest rate to 3.5%, and President Christine Lagarde has signaled that there may be additional rate hikes on the horizon.
Wambach emphasized that the industrial sectors are likely to be most affected by the anticipated economic downturn. Profit expectations for these export-oriented industries are expected to decline significantly once again.
In addition to these economic concerns, the ZEW’s index measuring the current economic situation in Germany also saw a slight dip, falling to minus 59.5 in July compared to minus 56.5 in June. Economists participating in The Wall Street Journal’s poll predicted a decrease to minus 62.0.
These latest developments paint a gloomy picture for Germany’s economy and raise concerns about its future trajectory.