ZEW Economic Sentiment Index

What is ZEW Indicator of Economic Sentiment?

The ZEW Indicator of Economic Sentiment for the euro area comes from ZEW Mannheim. ZEW Mannheim is a German research centre for European economic study. The survey is called the ZEW Financial Market Survey. It asks finance professionals about the euro-area economy over the next 6 months.

The panel draws from banks, insurers and large firms. It includes traders, fund managers and investment consultants. The invited group runs from 300 to 350 people, with about 90% answering online.

It measures directional expectations, not realised activity. It does not measure GDP growth, inflation results or household confidence. The euro-area row differs from the Germany row in the same survey.

It also differs from the European Commission Economic Sentiment Indicator. That other survey covers firms and consumers, not finance experts.

When is it released and what happens each release?

The survey runs each month over about 14 days around mid-month. Replies arrive through one online questionnaire. ZEW publishes results near mid-month at 11:05 Frankfurt Time.

Each release shows the expectations balance and the current situation balance. It also shows inflation, short rates, stocks, currencies and parallel rows for Germany, the United States and China. It adds one rotating special question, a detailed table, the questionnaire and a history file.

ZEW states no revision rule. Each release shows the balance with its change from the prior release. Markets read direction and level against 0.

What moves ZEW Indicator of Economic Sentiment?

The euro-area table holds 6 rows with a 6-month view unless noted.

• Economic expectations: share saying improve, no change or worsen. This is the headline balance.

• Current economic situation: share saying good, normal or bad. This sits apart from expectations.

• Inflation rate: share expecting increase, no change or decrease.

• Short-term interest rates for 3-month interbank rates: share expecting rise, no change or fall.

• Stock market as EURO STOXX 50: share expecting rise, no change or fall.

• Exchange rates of the euro: share expecting gain, no change or loss, including dollar and yuan.

One release showed expectations at -59.7 points, up 1.0, on 7.5% improve, 25.3% no change and 67.2% worsen. The situation stood at -70.6 points, down 11.7, on 1.2% good, 27.0% normal and 71.8% bad. So the headline rose while assessed conditions sank.

Inflation stood at -35.8 points, down 23.7, as 13.3% saw higher and 49.1% saw lower inflation. A negative inflation balance thus means most expect falling inflation. President Achim Wambach said the outlook had deteriorated again despite the small rise in expectations.

The lesson is clear. Expectations look forward while the situation rates the present, so the two must stay separate.

How is ZEW Indicator of Economic Sentiment calculated?

1. Collect answers: each person gives one worded reply per question. Replies with no estimate are dropped, so the 3 shares sum to 100%.

1. Encode replies: positive replies score +1, neutral replies score 0 and negative replies score -1. Each person counts the same, with no seasonal smoothing described.

1. Build shares: count positive share p and negative share m as percentages.

1. Take the balance: use s = p - m, the mean of encoded replies. It appears in points with one decimal, from -100 to 100.

For example, 200 replies split 60 improve, 80 no change and 60 worsen give 30% minus 30%, or 0.0 points. The middle 80 replies form 40% neutral and do not enter the subtraction. Zero marks balance between optimists and pessimists.

Key point: -59.7 points equals 7.5% improve minus 67.2% worsen. It signals a net pessimist majority on direction, not a 59.7% fall and not a verdict on the present.