German Confidence Falls

If the Germany economy is the only real healthy one in Europe, and Europe must rely on Germany as the bedrock for bailouts of weak nations, the odds that the country can be of substantial assistance have dropped. Research firm ZEW reports:

The ZEW Indicator of Economic Sentiment for Germany has dropped by 2.7 points in July 2012. This represents the third decline in a row. The indicator now stands at a level of minus 19.6 points. This value is below the indicator’s historical average of 24.0 points

ZEW did not report the basic reason for the drop, but it is not hard to guess. Germany exports likely have eroded in the past several weeks as demand among its neighbors drops, along with that in other large and slowing economies, including the United States and China. For now, there is not much chance these economies will surge back, although they could begin a new recovery by year’s end.

The possibility that Germany will have to bear the load of hundreds of billions of dollars in bailout funds has to weigh on sentiment as well. Where will Germany find this money? Some may come from debt, but most of it likely will come from taxpayers. Caution is usually the enemy of confidence. There is no reason to believe that Germany is any exception.

The head of ZEW concluded:

“The decline of the economic expectations concering [sic] the end of 2012 is flattening out gently. This could possibly be an early sign of an encouraging development in 2013. However, risks should not be underestimated. Besides the weak demand from the Eurozone for German exports, the German economy is also burdened by weakening growth dynamics in other important partner countries,” says ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

That reads like most other forecasts for 2013. The economy could be better until it is not.

Douglas A. McIntyre