A Change in Direction for November German ZEW Survey?

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Last month’s ZEW survey showed a drop in optimism among German businesses across the board.

The measure was still comfortably in expansion but had come off the 20-year highs of September.

During the summer, many leaders had become comfortable with the relatively low number of covid cases in Europe. So much so that they believed that a second round of lockdowns would almost certainly be avoided.

Government officials were on the record stating that they would not reimpose them. And those same government officials have now implemented lockdowns.

Europe’s relative lack of cases in summer compared to the US likely led strategists to believe that Europe had managed the pandemic.

This led to the conclusion that a second wave would be avoidable or not as bad as the first.

The surge in cases seen in October in particular has apparently caught many people by surprise.

Authorities have been much slower this time around in implementing anti-covid measures, This potentially suggests that the course of the second wave could be longer.

The Outlook

The latest estimates from major pharmaceuticals are that the first vaccine will become available in the third week of November. And mass manufacturing is already ramping up.

However, we aren’t expecting the significant number of doses required to create herd immunity until late in Q1 or early Q2 of next year.

In Germany, the latest round of lockdown measures are supposed to last a month (until early December), at which point there will be a reevaluation.

But last Friday was Germany’s latest record number of cases, suggesting that the peak has yet to be reached. And even if case numbers reduce over the next three weeks, lifting lockdowns will only see the cases rising again.

Given this scenario, it’s not surprising that German businesses (and in the EU more broadly with even higher case numbers) have a decidedly pessimistic outlook for the rest of the year.

What We Are Looking For

As usual, what drives the market is the outlook section of the ZEW survey (the Economic Sentiment component.) This section asks business leaders where they expect the situation to be in six months.

For context, that’s May of next year.

In other words, in spring and when vaccines are expected to be widely available. But the economic impact over the winter could be such that even as things are recovering, we still haven’t returned to current levels.

Expectations are for the ZEW November Current Situation index to fall further into the negative at -65. This is compared to -59.5 at the last reading. This would be the first retracement since August, but still far from the worst moments of the first wave.

Projections indicate that the ZEW November Economic Sentiment will decrease, but still have a positive outlook at 40.0 compared to 56.1 last month. However, this would be the worst performance since April.

It would also be an acceleration of the downward trajectory since September.

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