German equities experienced a subdued trading session on Tuesday, with the benchmark DAX index remaining in negative territory throughout the day. By midday, the index was calculated at approximately 24,150 points, marking a 0.3% decline from the previous day’s close. While BASF, Zalando and Merck led the gains, Airbus, MTU and Rheinmetall faced significant losses.
The unexpected surge in December’s ZEW economic sentiment expectations failed to provide a substantial boost to the market. Thomas Gitzel, Chief Economist at VP Bank Group, noted, “Financial market analysts surveyed by the ZEW are looking optimistically towards the coming year”. This optimism appears largely predicated on the anticipated positive impact of the federal government’s infrastructure program, which analysts believe will begin to yield tangible results.
However, the ZEW data presents a stark divergence from the Purchasing Managers’ Index (PMI) released earlier the same morning, which painted a considerably more cautious picture of future economic performance. Gitzel highlighted this disconnect, emphasizing the contrasting perspectives between the surveyed financial analysts and those reflected in the PMI. This disparity raises questions about the reliability and potentially biased nature of the ZEW survey, particularly given its reliance on the views of financial market participants.
The effectiveness of the infrastructure program and subsequent economic recovery, will hinge on the speed and precision with which funds from the special asset fund are released. According to the ZEW survey respondents, efficient allocation of these resources could trigger multiplier effects, stimulating broader sections of the German economy. Critics, however, point out that past government initiatives have often been plagued by bureaucratic delays and misallocation of funds, potentially undermining the projected benefits and fostering disillusionment with the federal government’s economic policies. The current fragile economic climate demands more than optimism; it requires demonstrable action and diligent oversight to ensure the infrastructure program’s success.