Germany's economic sentiment takes a dramatic fall as outlook worsens

Germany's economic outlook took a dramatic and unexpected downturn in September, signalling a deepening slump in confidence for the eurozone's largest economy.

The ZEW Economic Sentiment Index, a key measure of the economic morale held by financial experts, dropped from 19.2 points in August to just 3.6 points in September, well below forecasts of 17 points. This marks the index's lowest level since October 2023.

The sub-index measuring current conditions fell sharply to -84.5 points, down from -77.3 points in August and significantly below expectations of -80 points. It is the weakest reading since May 2020.

"The hope for a swift improvement in the economic situation is visibly fading," ZEW President Achim Wambach said.

Expectations for the next six months have worsened across most industries, with the steepest declines seen in mechanical engineering, steel, automotive, and banking. Conversely, construction, utilities, and telecommunications sectors experienced a more optimistic outlook.

The malaise in Germany's economy also affected the broader eurozone, where the ZEW sentiment index dropped from 17.9 points to 9.3 points in September, missing the anticipated 16.3 points and also hitting lowest in nearly a year.

"Although the falling economic expectations for the eurozone point to an overall rise in pessimism, the drop in expectations for Germany is significantly greater. Most respondents appear to have already factored the interest rate decision into their expectations," added Wambach.

On Monday, European Central Bank (ECB) Governing Council member and Slovakia’s central bank chief, Peter Kazimir, dismissed hopes for a consecutive interest rate cut in October, suggesting that December would be a more likely time-frame.

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