Germany's financial markets' sentiment deteriorates to 14-year low

Germany's financial markets experts' sentiment deteriorated again in July, reaching a new record low. The economic expectations indicator, published by the Centre for European Economic Research (ZEW) in Mannheim dropped to -53.8% from -28% in June. After the initial plunge in March due to the Russian invasion of Ukraine, the indicator has been inching up for three consecutive months, before heading down again in the most recent data update.

A similar movement is registered by the indicator measuring the current economic situation according to the financial experts, participating in the survey. It dropped to -45.8% in July from -27.6% in the previous month.

The deterioration could be attributed to the fears of an upcoming recession in Europe. The European Central Bank (ECB) made it clear that it will start increasing the key interest rates on July 21st in the light of accelerated inflation and that might hamper the GDP growth outlook. In mid-July, the Euro weakened to a 20-year low and essentially reached parity with the US dollar.

At the same time in Germany specifically, households and businesses are bracing for the winter months in an environment of uncertain energy supplies. The Nord Stream pipeline is undergoing maintenance with the gas flow expected to resume on July 21st. However, due to the war in Ukraine and the sanctions by the EU and the US imposed on Russia, there are concerns about the potential energy supplies from Russia to Europe. Germany is especially vulnerable as it is highly dependent on Russian gas.

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