Global Daily – Early February indicators not great

by: Nick Kounis , Aline Schuiling

In this publication: German ZEW economic sentiment continued to drop in February while early US business surveys soft as well. Global economy in a more prolonged soft patch.


Global-Daily-Insight-17-February.pdf (234 KB)

Survey indicators soft in February

Early survey readings on economic activity for  February from Germany and the US were relatively weak or pointed to a loss of momentum. Although certainly not among the most valuable indicators for the global economy, with Germany’s ZEW tracking investor/analyst expectations and the Empire State Index only a regional survey, they are still worth watching given their timeliness. The overall message seems consistent with the view that global economic growth is going through a more prolonged soft patch.

Germany’s ZEW sentiment falls on worries about the global economy, …

The ZEW economic sentiment indicator dropped lower for the second month in a row in February. The part of the survey that gauges expectations about the German economy during the next six months (balance between improve and deteriorate) declined from +10.2 in January to +1.0, which is considerably below the long-term average value of around +25. The worsened outlook for Germany was largely driven by worries about the global economy. Indeed, the expectations about the economies of the US, Japan and the UK all moved sharply lower. That said, the ZEW survey is very much driven by sentiment in financial markets and the declines in January and February largely reflect the drop in the price of risky assets since the start of this year. Although we have lowered our forecast for growth in the eurozone and the US recently (please see our Daily Insights of 16 February), we still expect the German economy to continue to expand at a moderate pace this year on the back of robust domestic fundamentals and further policy easing by the ECB.

… while expectations about inflation drop lower

The results of the ZEW survey also show that expectations about inflation in the eurozone dropped sharply. The balance (increase minus decrease in inflation) dropped by 20 points to 18.4, with a majority (55 percent) of the participants to the survey expecting inflation to remains close to its current level, i.e. close to zero.

US Empire State index remains at lows, while homebuilder confidence falls

Meanwhile, the US survey data also did not provide much reason for cheer. The Empire State Manufacturing Index rose to -16.6 in February from -19.4 in January, leaving it at very low levels. Indeed, January’s index level was the lowest since March 2009, so the modest rise from those levels is far from encouraging. The survey is in line with other evidence that the manufacturing sector is being hampered by the strong dollar and weak global growth. Domestic survey indicators are at still at high levels but appear to be losing some momentum. The NAHB housing market index fell to 58 in February from 61 in January. This follows in the footsteps of the preliminary reading of the University of Michigan consumer sentiment indicator, which also fell back in February from elevated levels.