(CEP News) - German investor optimism is likely to improve for the sixth month in a row, boosted by the recent gains in equity markets, and monetary and fiscal measures, economists say.

On Tuesday, the Centre for European Economic Research (ZEW) will release the results of its economic sentiment survey for Germany. The ZEW release is a widely viewed barometer of how analysts and investors in the euro zone’s largest economy expect the economic situation to develop in six months time.

Ahead of the report, economists expect that survey respondents will grow increasingly optimistic towards the outlook and push the economic sentiment indicator to 2 in April from March’s -3.5 level. A reading above zero would imply that the number of respondents who believe the situation will improve outweighs the number that expects the situation to worsen.

“The idea that the worst might be in the past now in the financial sector should shore up investor confidence,” Calyon Crédit Agricole senior FX strategist Stuart Bennett said. He expects improved investor sentiment to drive the ZEW headline figure up to 2, in line with the consensus forecast.

However, while Bennett said that “it’s more or less a certainty” that the expectations component of the ZEW will rise back to positive territory for the first time since July 2007, he forecasts further deterioration in investors’ view of the current situation.

Economists at Citigroup agreed, noting the ongoing weakness in both the industrial sector and the German labour market.

“The ongoing sharp fall in industrial production in combination with increasing unemployment is likely to contribute to a further fall in the assessment of the current business situation from -89.4 in March to -95 in April, close to the lower bound of the survey range of -100,” the economists said.

Currently, forecasts suggest that investors’ opinion towards the current economic environment will continue to deteriorate, bringing the ZEW current situation component to -90.0 in April, down 0.6 points from the previous month’s level.

“There is a divergence,” Bennett added. “People think things are going to be better due to stimulus measures, both monetary and fiscal, but still [concede] that, right now, we are still in a very deep recession.”

Furthermore, despite indications that the worst has possibly passed, Bennett maintained his reservations and suggested that market participants may be too optimistic regarding the six-month outlook.

“It might be too optimistic,” the strategist said. “We’re not completely out of the woods yet.”

While the recent rebound in stock indexes has economists at Capital Economics forecasting an above consensus figure of +5.0 for April’s ZEW print, they also warned not to interpret the figure as a sign that an economic recovery is imminent.

“While [a majority of investors believing that the economic situation will improve in six months] would be broadly encouraging, we would note that the index has not been a very strong leading indicator of actual German GDP growth in the past,” the economists said in a research note.

The ZEW will also publish its economic sentiment figure for the euro zone as a whole. Ahead of the data release, expectations are for growing German investor optimism to come in at 0.0 for April, up from March’s -6.5 print.

By Todd Wailoo, twailoo@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca

CEP Newswires - CEP News © 2009. All Rights Reserved. www.economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.

Posted in Categories: Economy, Eurozone, Releases.

Subscribe by RSS Subscribe by Email