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German ZEW Index Rises Surprisingly in May But Fresh Risks Loom in China

Economic Indicators May 10, 2022 05:17AM ET
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By Geoffrey Smith

Investing.com -- Confidence in Germany's economic prospects surprisingly improved in May, recovering slightly from the shock created by Russia's invasion of Ukraine.

The closely watched ZEW Economic Sentiment index rose to -34.3 from -41.0 in April, thanks to an improvement in assessments of the outlook for the economy. Assessments of current conditions, however, continued to deteriorate: the relevant subindex fell again to -36.5, worse than forecast.

The Mannheim-based ZEW stressed, however, that the index remained close to historic lows, with renewed supply chain problems in China offsetting any marginal relief at Germany being able to avoid a sudden stop of energy imports from Russia. The EU intends to phase out imports of Russian coal, oil, and refined products by the end of the year, but Germany has successfully lobbied against imposing a timeline for ending gas supplies, which are harder to substitute.

COVID restrictions in China are "a heavy burden for future economic growth in Germany," the institute warned.

"The small rise in the ZEW ... left it still very low," said Capital Economics' Jack Allen-Reynolds in a note to clients. " And the current conditions index fell further, which is consistent with our view that the economy will contract in Q2."

The findings of ZEW's survey, which is taken from professional economists, were echoed by similar reports from industry on Tuesday. The engineering sector's lobby group VDMA reported that the lockdowns were "leaving deep traces on local machinery and plant manufacturers," saying that 98% of the companies it had surveyed there complained they had been affected.

Nearly half (49%) had to shut down their operations completely due to lockdowns, and some 40% of those had had to shut down for three weeks or more.

"An elimination of these bottlenecks is not yet in sight. The resumption of production, especially in Shanghai, is very slow," the VDMA warned.

The problems caused by Russia's invasion and by China's lockdowns are already starting to show in Germany's economic data. Figures released over the last week showed that incoming orders to manufacturers, a key forward-looking indicator for the Eurozone economy, fell by 4.7% on the month in March, while industrial production fell 3.9%. Exports, the traditional engine of German growth, fell 3.3%. Production in the key auto sector fell by over 10%.

The German statistics office Destatis said at the time that the proportion of companies complaining of supply chain problems was now close to its pandemic-era high of 82%.

German ZEW Index Rises Surprisingly in May But Fresh Risks Loom in China
 

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