German Investor Confidence Rises but Concerns Remain

German investor confidence rebounded in August after the initial shock of Britain’s decision to leave the European Union. The Current Conditions Index rose to 57.6 in August from 49.8 in July, well above expectations for an increase to 50.0.

Achim Wamback, president of ZEW, said: “The ZEW Indicator of Economic Sentiment has partly recovered from the Brexit shock”.

“But “political risks within and outside the European Union”, as well as lingering “uncertainty about the resilience of the EU banking sector” continue to cloud Germany’s economic outlook”, he added.

The German Investor Confidence Index released by the ZEW economic institute on Tuesday gained 7.3 points to stand in positive territory at 0.5 points in August, recovering from a massive 26-point slump in July that had brought the index to minus 6.8 points.

Despite the improvement, some investors remain unconvinced that a recovery in financial markets since late June that propelled the DAX Index by some 15 percent is sustainable. “Furthermore, uncertainty about the resilience of the European Union banking sector persists”.

The ZEW index for the Eurozone strengthened to 4.6 from -14.7 previously with the current situation improving only slightly to -10.3 from -12.4, while there was a strong gain for the expectations index. But analysts struck a note of caution.

The ZEW index was based on a survey of 214 analysts and investors conducted between July 29 and August 15. This seems more consistent with the message from equity markets and the positive tone of the business surveys for July.

Bayern LB analyst Stefan Kipar also tempered optimism over the surveys.

The Bundesbank said in its monthly report on Monday that the limited impact of the Brexit vote on sentiment among German businesses supports the view that the economy won’t be significantly affected in the short term. “The recovery in the financial markets in the past weeks appears to be rather premature from an economic point of view”, he added.