• Klaus Meitinger

Sentiment indicators give a false picture.

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Logo pw2Dear Readers,

The economic expectations surveyed by the Leibnitz Centre for European Economic Research (ZEW) have just improved significantly. Specifically, the economic expectations rose from 28.2 to 51 points in May, bringing the index back to the level of spring 2015 and thus significantly above the pre-Corona prices.

The current ultra-expansive monetary policy and the government rescue measures would have a positive impact. On balance, the experts surveyed by the ZEW are confident that the economy is turning the corner.

I'm afraid that's not so certain. The positive results are mainly based on the specific question.

The first question of the ZEW is: Do we currently assess the overall economic situation as: good, satisfactory (normal) or bad? The answer is simple. Nearly all respondents chose "bad".

The follow-up question is: The overall economic situation will improve, not change or worsen in the medium term (6 months).

Given the starting position - lockdown, production from zero in many areas - there was actually only one logical answer to this question: "Improve". It takes a lot of pessimism to believe that the situation will change in six! months from now, the situation will not be any more favourable. In fact, we were rather surprised that the corresponding value (balance of improve and worsen) only rose to 51 points.

Unfortunately this does not say anything about the dimension of improvement. For a restaurant owner who has been closed so far, the situation will of course improve if he is allowed to serve a single guest for the next six months. But he will still not make enough turnover to survive.

Conclusion:

Sentiment indicators that now ask whether the economic situation will improve, worsen or remain the same in six months time give a false, overly optimistic picture of the economy. Do not be fooled,

Your

Klaus Meitinger

Note: Despite careful selection of the sources, no liability can be assumed for the accuracy of the content. The information given in private wealth is for information purposes only and is not an invitation to buy or sell securities.

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