ZEW Indices

ZEW indices

There are two major business sentiment indices done in Germany that are unique to that country: the Ifo and ZEW indices. The big difference between the two is that the Ifo asks companies about their view of the current situation and their expectations for the future, while the ZEW asks similar questions to analysts and economists. Thus the Ifo is probably a better gauge of reality while the ZEW is a better gauge of investor sentiment.

1       The ZEW Index

The Centre for European Economic Research (ZEW) in Mannheim, Germany is a nonprofit and independent institute founded in 1990 in co-operation with the University of Mannheim, ZEW is one of Germany's leading economic research institutes. It has four key objectives:

• To conduct economic research
• To provide economic policy advise
• To train young economists, and
• To inform the public

The ZEW Indicator of Economic Sentiment is a monthly sentiment index. Up to 350 financial experts take part in the survey. Like the Ifo, it is a “diffusion index.” That is, the indicator reflects the difference between the percent of analysts who are optimistic and the percent who are pessimistic for the expected economic development in Germany in six months. The survey also asks for the expectations for the Eurozone, Japan, Great Britain and the US. The level of the ZEW does not reliably predict the pace of economic growth. However, the ZEW tends to signal economic turning points some four to six months ahead.