width=172Release: Germany ZEW Economic Sentiment (Feb) Consensus Forecast: -11.6 Previous: -21.6 Date/Time: 02/14/12 5:00AM ET (9:00 GMT)
Does Germany's Economy Continue to Rebound from Late 4th Quarter Slowdown?

While the main focus of attention in Europe continues to remain on Greece and whether it will secure approval for a second bailout from European finance ministers on Wednesday, we do have an interesting report coming out during the Tuesday European session which should shed some light on the German economy.

That releases the ZEW economic sentiment for February - a measure of expectations and outlooks from financial analysts and institutional investors - which is expected to show continued improvement.


The index is expected to climb set -11.6 from -21.6 extending the gains we have seen in January as a result of the positive sentiment accrued from the ECB's LTRO operation which helped to calm the funding crisis faced by the European banking system.

German Economic Data A Bit Mixed, With Improvement in January from Soft December

Last week German manufacturing data had mixed releases including a better-than-expected jump in factory orders (+1.7%) but a weaker than expected showing from industrial production which fell 2.9%. Both readings were for December and while the weaker industrial production report tell us that Germany's economy slowed in December, the pickup in factory orders is a leading indicator that growth was stronger to begin January.

German retail sales for the month of December dropped 1.4% while the unemployment change for January fell by 34K, another mixed signal from the economy as the labor market continues to improve but consumer spending remains soft.


At the end of January we saw that Germany's manufacturing PMI moved back above the 50 level for the month at 50.9 and the services PMI rose to 54.5 a big improvement from December's 52.4 and will above forecasts of 52.6.

Going by the PMI reports - which are leading indicator compared to output - the German economy strength in January.

The ZEW economic sentiment index therefore should capture all of this and if investors remain confident about the outlook for Germany that's a positive sign. That will come amid data this week which should show the euro zone economy contracted as a whole in the 4th quarter as did Germany.

Therefore a rebound in Germany's expectations should help to buttress the soft economic activity we will see from the southern tier of the euro zone area going forward. Where Germany goes the rest of the euro zone tends to follow and if we hope positive resolution for the Greek situation the ZEW index could be a harbinger of more positive data in the coming weeks.

Therefore while it may get buried compared to the anticipation for both the Finance Minister meeting on Wednesday as well as the preliminary GDP data for the fourth quarter, the ZEW sentiment can help give a boost to the euro in the Tuesday European session and offers us clues as to the health of the Germany economy going forward.

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Nick Nasad is an analyst, educator, and trader; and one of the main contributors to  FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.