As the interest rates decrease, investor trust in the stock market increases.
Financial experts are starting to view the German economy with a more positive outlook due to the anticipation of lower interest rates. The confidence level in the economy's future situation increased by 9.5 points to 13.1 points in October, as reported by ZEW, a research center in Mannheim, based on a survey of 161 analysts. This is the first rise after three consecutive declines. Experts had only predicted an increase to 10.0 points. However, the current situation barometer fell by 2.4 points to -86.9 points, which is its lowest point since May 2020, during the severe recession caused by the pandemic.
Analysts are not yet hoping for a significant turnaround. "The improvement in expectations can only be because people believe things can't get any worse," said Alexander Krüger, chief economist at Hauck Aufhäuser Lampe Privatbank. "The survey does not provide any grounds for optimism." Robin Winkler, chief economist for Germany at Deutsche Bank Research, pointed out that economic expectations also improved greatly in the spring, but it was proved to be an inaccurate signal later on. "The mood needs to improve significantly for investor confidence to return, particularly corporate investments," said Winkler.
Germany's hopes are pinned on China's economic program
The ZEW shares a similar perspective. "Starting from a very negative evaluation of the current situation, economic expectations for Germany are rising," commented ZEW President Achim Wambach on the situation. "The anticipation of stable inflation rates and the chance of further interest rate cuts by the ECB is contributing to this," he added. This will likely reduce financing costs for investments.
According to ZEW, there are also positive signals from prominent German export markets. Economic expectations for the eurozone, the USA, and China have improved significantly. "The increased optimism for China is probably linked to the economic measures taken by the Chinese government," said Wambach. "These developments are also likely to have contributed to the increased economic expectations for Germany."
The German government predicts a second consecutive year of recession in 2024. In its autumn projections, it expects a 0.2 percent decline in GDP after a 0.3 percent decrease in 2023. Economic growth of 1.1 percent is projected for 2025, with forecasts of 1.6 percent in 2026.
The anticipation of stable inflation rates and potential further interest rate cuts by the ECB are fueling the rise in economic expectations for Germany, which could reduce financing costs for investments due to changes in interest rates. However, experts remain cautious, as they recall a similar improvement in expectations in the spring that did not materialize as expected.
