Glass production machinery at a medical glassware factory in Buende, Germany
Production machinery at a medical glassware factory in Buende, Germany. Investors are particularly upbeat about the prospects for pharma © Bloomberg

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Investors’ confidence about the future of Germany’s economy has surged but sentiment about the current economic climate remains deep in negative territory, according to a survey published on Tuesday.

The Zew survey of financial market experts found that the economic outlook for Europe’s largest economy shot up by 12.2 points to a record 71.5 points this month, after dipping in July. This was the highest level of optimism reported since January 2004.

The August reading beat economists’ expectations. They had predicted a slight fall to 58.0 points, according to a Reuters poll.

Sentiment about the economic development of the eurozone also improved, with the indicator for the bloc’s outlook climbing 4.4 points from the previous month to 64.0 points.

Yet investors’ assessment of Germany’s current economic climate failed to improve, falling to minus 81.3 in August, marginally lower than the minus 80.9 reported a month earlier and well below the minus 9.5 recorded in January.

“Hopes for a speedy economic recovery have continued to grow . . . but the assessment of the [current] situation is improving only slowly,” said Zew president Achim Wambach.

Line chart of ZEW economic sentiment index showing Investors' optimism about Germany's economic outlook surges

The improvement in investors’ outlook followed signs that the country was recovering from a government-imposed coronavirus lockdown at a quicker pace than other eurozone member states.

German output contracted by 10.1 per cent in the three months to June, compared with the previous quarter, data published last month showed. Although this was the biggest decline in gross domestic product since quarterly calculations began four decades earlier, it was less of a contraction than the 18.5 per cent drop recorded in Spain or the 13.8 per cent fall for France.

Orders from Germany’s factories jumped by a record 27.9 per cent in June from a month earlier, the Federal Statistical Office said last week. Meanwhile, the country extended its overall trade surplus by €7bn in June, benefiting from increased trade with China. Its exports to the country rose 15 per cent.

Investors surveyed by Zew were particularly upbeat about the prospects for Germany’s pharmaceuticals and information technology sectors. Most experts believed they would see improvements over the next six months.

But poor earnings expectations for banks and insurers over the next six months remain a cause for concern for investors, Mr Wambach warned, while the outlook for the automotive industry was also still tentative.

“The subdued current conditions index indicates that the German economy is still suffering from the impact of the pandemic,” said Rosie Colthorpe, European economist at Oxford Economics. “This supports our view that the recovery will be more difficult beyond the initial bounce in activity when the lockdown ended.”

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