March 6, 2021

Off the Charts: Germans Start to Question Their Economic Resilience

PESSIMISM is growing in Germany, which until now had felt it would ride out the world’s economic troubles with minimal damage.

The ZEW Financial Market Survey, a widely followed measure of the views of economists and financial analysts in Germany, reported this week that in August its index of current economic conditions in Germany suffered its largest one-month decline since it began to be calculated in 1991.

That index, created by subtracting the number of analysts who think the current economic situation is bad from the number who view it as good — thus ignoring those who think it normal — fell to 53.5 points from a sky-high 90.6 in July. The drop of 37.1 points exceeded the previous record fall of 34.9 points, set in October 2008 after the collapse of Lehman Brothers.

A majority of the analysts still think the German economy is good, and a scant 4 percent think it is in bad shape. But nearly half of them think the economy will get worse over the next six months, while less than one-tenth of them think the situation will improve over that time.

The survey, conducted by the Center for European Economic Research, whose initials in German are ZEW, also asks the German experts for opinions on the state of the euro zone and its largest members, and on the prospects for a variety of German industries.

As can be seen from the accompanying charts, the German analysts used to see the overall economy of the euro zone as virtually a carbon copy of the German economy. If the Germans were doing well, so was the euro zone. The second- and third-largest economies in the zone, France and Italy, were usually seen as doing worse than Germany.

By the time the financial crisis hit bottom in the spring of 2009, there was virtual unanimity: the economies were bad everywhere.

After economies began to recover, however, German experts’ views of their own economy soared, while their views of other economies did not. For nine consecutive months, through July, more than 80 percent of the experts said Germany’s economic condition was good. During the same stretch, the proportion thinking the economic situation was good in France, Italy or the euro zone remained below a third, and was usually much smaller.

The experts have continued to foresee that Germany’s future is linked to that of its neighbors, as can be seen in the second chart. But starting in June, when the latest plan to rescue Greece was cobbled together, pessimism began to grow.

A reason for that change can be seen in the survey’s questions about whether profits of German banks would rise or fall over the next six months. Throughout 2010, as can be seen from the third chart, only a small minority believed German bank profits would probably decline.

But that confidence began to weaken in June, as chances increased that banks would be forced to take losses on Greek loans, and perhaps on loans to other troubled countries. For the first time since the height of the financial crisis in the spring of 2009, a majority of German analysts say they think German bank profits are likely to decline.

Floyd Norris comments on finance and the economy at

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