Investor sentiment in Germany rose for the tenth consecutive month in May, surpassing expectations and reaching its highest level in over two years. This boost was fueled by optimism regarding a potential interest rate cut from the European Central Bank in June and heightened export demand from China, according to a survey released on Tuesday.
The ZEW Indicator of Economic Sentiment for Germany increased to 47.1 in May, up from 42.9 in April, exceeding economists' forecasts of a score of 44.9. This index has been on a steady incline since August of the previous year, when it was recorded at -12.3. The latest figure represents the highest level since February 2022. The indicator assessing the current economic situation in Germany also saw an improvement, climbing to -72.3 from -79.2, with economists predicting a reading of -75.0 for May. This was the strongest reading since last August.
ZEW President Achim Wambach attributed the sustained improvement in investor confidence to the stronger-than-expected economic performance in the first quarter. The German economy avoided a recession in the first quarter, buoyed by exports and investments in construction, leading to a sequential GDP growth of 0.2 percent, which was higher than anticipated.
"Signs of an economic recovery are increasing, supported by improved assessments of the overall eurozone and China as a key export market," Wambach noted.
"The heightened optimism is particularly evident in the sharp rise in expectations for domestic consumption, followed by the construction and machinery sectors," he added.