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German ZEW business expectations rose noticeably in the month of November. The index rose to -2.1 from -22.8, coming above consensus expectations, which had expected a rise to -13. The reasons for the much better assessment of business expectations are clear: the leading indicators seem to be stabilizing. For instance, new orders for German industry are now trending sideways; this applies to orders from abroad.
Nevertheless, today’s print should not create too much optimism. While the global economy is likely to warm up in the months ahead, only a fairly modest recovery is expected, said Commerzbank in a research report.
The Chinese economy, which has become quite significant for German exports, is likely to stabilize in spring 2020, given the considerable tax cuts. Nevertheless, the trade dispute and China’s structural problems are preventing a dynamic recovery.
The trade dispute is expected to continue to be a drag on the U.S. economy, even if the U.S. Fed’s interest rate cuts and the Trump administration’s likely generous government spending in the 2020 election year would underpin the U.S. economy, said Commerzbank.
The recent interest rate cuts in several emerging markets are also expected to help boost the global economy. Nevertheless, China’s softness stays a drag, especially for emerging Asian economies.
“This means that optimism should be more subdued for the coming year. But first, the GDP figures for the third quarter due out next Thursday have to be digested. In our view, the German economy is expected to have shrunk slightly in the third quarter (Commerzbank: -0.1 percent; Consensus: 0.0 percent), which would meet the definition of a recession”, added Commerzbank.
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