Aline Schuiling, the senior economist at ABN AMRO, notes that Germany’s ZEW economic expectations indicator edged down in October, falling to -22.8, down from -22.5 in September while the current conditions component moved more significantly lower, to -25.3 from -19.9.

• “The expectations component tends to be the part of the survey that tracks changes in economic growth relatively well. At its current level it signals ongoing modest contraction in Germany’s GDP until the end of this year.
• The drop in the ZEW expectations indicator in recent months has largely been driven by deterioration in the outlook for global growth and world trade and uncertainties surrounding Brexit.
• Indeed, the ZEW survey shows that the expectations about the US and UK economies are the worst, with a majority of the participants to the survey expecting deterioration in the coming two quarters. With regard to the expectations for the eurozone economy, most participants expect economic conditions to remain unchanged at current weak levels.
• Looking forward, we do not expect a deep or long recession in Germany as private consumption, government spending and construction output are expected to continue to grow solidly in the coming quarters, which will buffer the negative impact of exports and manufacturing output. Indeed, we have penciled in another contraction of GDP in Q3 and stabilization in Q4.”