ZEW German economic sentiment drops sharply in February

The European Economic Research center, ZEW, revealed the monthly economic sentiment index on Tuesday. Recorded sharply lower than the economists’ forecast for February, the report weighed on Euro in the forex market that immediately lost traction following the release of the economic data.

German Economic Sentiment Records At 8.7 In February Versus 20.0 Expected

As per Tuesday’s data, German economic sentiment remained deeply under pressure in February. The index was revealed at 26.7 in January. In light of the economic slowdown ascribed to the recent outbreak of Coronavirus in China, however, analysts were expecting the index to drop to 20.0 in February. Printing significantly lower at 8.7, however, the data fueled a 34-month low in EUR/USD that traded as low as 1.0785 on Tuesday. At the time of writing, the currency pair has recovered a chunk of loss and is exchanging hands at around 1.0815.

The current conditions sub-index, on the other hand, was revealed at -15.7 in February. The figure was capped at a much higher -9.5 in January. The sub-index was also expected to fall in February with experts anticipating it to print at -10.3 instead. As evident, the drop in the current conditions sub-index was also alarming in February, as per Tuesday’s data.

ZEW also released the report on economic sentiment in the Eurozone at large. Eurozone saw its economic sentiment index at 25.6 in January. According to the analysts, the index was anticipated to rise to 30.0 in February. Tuesday’s data, however, noted the index at a much lower 10.4 in February.

President Professor Achim Wambach Comments On Tuesday’s Data

According to Professor Achim Wambach, President of ZEW:

“The feared negative effects of the Coronavirus epidemic in China on world trade have been causing a considerable decline of the ZEW Indicator of Economic Sentiment for Germany. Expectations regarding the development of the export-intensive sectors of the economy have dropped particularly sharply. Besides, the end of 2019 and the beginning of 2020 saw a worse than expected development of the German economy. Both the downwards revision of the assessment of the economic situation and the downturn in expectations show clearly that economic development is rather fragile at the moment.”

Economists have attributed much of the February’s drop to the German investors’ caution that the health emergency in China can further worsen the world trade scenario in the upcoming months and may manifest as a deeper recession in Germany’s manufacturing sector.

Tuesday’s economic data strengthened the expectations that the largest European economy is likely to further lose momentum in 2020’s first half.