Pace of growth in Germany will be more modest than the ZEW implies: Capital Economics

Quotes from Capital Economics:

- February's further improvement in ZEW investor sentiment provides some reassurance that confidence in the German economy is holding up despite the ongoing turmoil in Greece. The rise to +53.0, from +48.0 was the fourth in a row and left the index at its highest level since February 2014. While the rise was slightly smaller than expected, it suggests that German investors are continuing to focus on the economic benefits of a weaker euro and lower oil price as well as the possibility of some boost from ECB quantitative easing. 

- However, there is a clear risk that the improvement in the ZEW seen over the past few months could be short-lived if Greece and the European authorities fail to reach a deal, as is looking increasingly likely. Moreover, the ZEW has not been the most reliable indicator of developments in actual GDP growth in the past. 

- Forthcoming February business surveys, such as Friday's PMI and Monday's Ifo, should give a clearer indication of underlying conditions in the German economy and are likely to suggest that the pace of growth will be more modest than the ZEW implies. We expect annual GDP growth of around 1% this year.