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Geopolitical Factors Are Affecting Germany’s Economic Sentiment

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Nov. 20 2020, Updated 12:47 p.m. ET

Germany ZEW economic sentiment index so far in May 2018

According to data provided by the Centre for European Economic Research (ZEW), the Germany ZEW Economic Sentiment Index has remained flat so far in May compared to April at -8.2 and was in line with the market expectation. However, it was the weakest reading since November 2012.

The ZEW Economic Sentiment Index measures the economists’ level of confidence in the economy. The lowest reading in the past six years is signaling that economists are not very optimistic about the Eurozone’s economic condition. The rising uncertainty about the economy’s political environment is hampering consumer activity as well as the business activity in the economy.

Some global factors such as expectations of further change in international trade, the rising crude oil prices, and the US’s exit from the nuclear treaty with Iran affected Germany’s economy as well as the global economy in May 2018.

If we see stability in the Eurozone’s political environment going forward and strong improvements in its economic indicators, then we could expect that its equity market will also show a strong improvement.

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Performance of major ETFs

The iShares MSCI Germany ETF (EWG), which tracks the performance of Germany (DAX-INDEX), rose 1.3% in April 2018. The Vanguard FTSE Europe ETF (VGK), which tracks the performance of the Eurozone (N100-INDEX), rose 2.1% during the same month. However, EWG fell 3.9% so far in May 2018.

In the next part of this series, we’ll analyze UK’s inflation in April 2017.

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