The primary indicator of the economic outlook index, ZEW, which measures the prospects of financial experts, saw a drastic loss in August of 19.2 points, which is comparatively less than July`s 41.8 points. This fall in points during the phase between July and August has indicated an increase in distrust among the people about the country`s economic outlook and also tells a lot about the future of the Euro Zone.
The drop has exceeded market expectations of a more diffuse decline of 32 points. It is noticeable that the decline is the sharpest monthly downfall since July 2022.
Basically, the economic outlook of the entire Euro Zone is not looking so prominent at this stage after an index fall from 43.7 points to 17.9 points, which is the lowest level since the month of February and also below the expected points of 35.4. The decline of 25.8 points has indicated that it is one of the sharpest monthly declines in the bloc`s economic confidence since 2020`s April month.
The current data from Germany tells a lot about the current state of its economy, where the economic situation is also declining in respect of its corresponding indicator, which has dropped by 8.4 points to a negative 77.3 points. In contrast, the euro zone`s outlook indicator indicates a diffident increase, gaining 3.7 points to a negative 32.4 points.
Reasons behind the Euro Zone`s outlook decline:
The leading economy of the Euro Zone has been struggling with numerous phases of challenges that have disrupted the brittle recovery during the year 2024. A significant decline in global trade, which is due to falling demands in larger markets such as China, has also directly impacted the German market, which is an export-dependent economy.
ZEW President and Professor Mr. Achim Wambach stated that the economic sentiment of Germany is declining day by day. A survey indicated that this is the sharpest drop in economic anticipation over the previous two years.
Mr. Wambach pointed out that persistent uncertainty, which is driven by the blurred monetary policy and weak data of U.S. businesses, and the increase in tensions in the Middle East Zone, overall contributed to the declining rate of economic outlook.
Currently, there is uncertainty in the international stock market. The survey has indicated a decline in economic outlook among some larger stock indices, with experts estimating that DAX and STOXX 50 decline by 6.5 points and 4.6 points, respectively.
The financial market analysts have also become more distrustful of the United States dollar and estimated the economic weakness and the probability of the Federal Reserve’s decision to cut its interest rates, which helps depress the currency. The sentiment index for the dollar has declined against the euro by 24.2 points, compared to last month, when it reached negative 7.9 points.
The economic outlook has declined across all the major sectors, with an estimation of effectiveness of around 0.7 points.
The major dropout was noted in economically susceptible sectors such as retail and consumer goods, where they declined by around 24.2 points, which may lead to weakening consumer demand despite the high inflation rate and rising rates of interest. Numerous sectors, such as electronics, chemicals, and pharmaceuticals, have witnessed drastic declines. The electronic sector has fallen by 18.1 points, and the chemical and pharmaceutical sector has also dropped by 17.2 points.
In spite of the disturbing economic sentimental data, the responses from the market are relatively subdued. After the ZEW data was released, the euro remained stable at 1.0920.
The STOXX 50 Index of Euros has displayed strength, which increased by around 0.3 percent during the trading session, despite all the large economic concerns. This index tracks the performance of around 50 major institutions in the Euro Zone in terms of gains. Companies such as Siemens AG, Sanofi, and Enel Spa are the top gainers, with gains of 1.5 percent, 1.2 percent, and 1.1 percent, respectively. The companies’ sturdy performances help the overall index grow.
One of the leading country indices, such as the IBEX 35 of Spain, outshone others by 0.5 percent, while on the other side, the CAC 40 of France remains unchanged. In Germany, the energy company Siemens Energy AG was one of the top performers, rising at a rate of 2.6 percent, while the Sartorius AG pharmaceutical and laboratory equipment manufacturer dropped by 3.7 percent.
Luxury brands such as LVMH, Kering, and Hermes of France have experienced a slight dropout due to the slowdown in the primary market. Caixa Bank of Spain has witnessed a gain of 1.7 percent, while Grifols, a pharmaceutical company, has seen a fall of 5.3 percent after news of a security investigation.