"In this month's survey, the Crimea crisis is weighing on experts' economic expectations for Germany," said ZEW president Clemens Fuest. "Nevertheless, the indicator's level suggests that the economic upswing is currently not at risk," Fuest said. For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.
The sub-index measuring financial market players' view of the current economic situation in Germany rose by 1.3 points to 51.3 points in March, its highest level since August 2011. A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable. "The market jitters caused by the Crimean crisis have predictably dampened German investor confidence," said Berenberg Bank economist Christian Schulz. "Such big moves are not unusual, but the third successive decline does hint that the combination of emerging market turbulences earlier this year and the stand-off between Russia and the West may have a mildly dampening impact on Germany's investment climate," Schulz said.
"Beyond the probably minor impact of Western sanctions and potential Russian retaliation, this could hurt German growth a bit at least temporarily. However, it would take a much more serious crisis in Ukraine to derail the recovery in Germany and the eurozone as a whole," Schulz said, pointing to the rise in the current situation sub-index. Capital Economics economist Jonathan Loynes also felt that the drop in the March data "could prove to be just a blip."
"Although the index is by no means a perfect predictor of actual activity, at these levels it is certainly consistent with a further acceleration in (economic) growth," Loynes said. "With other surveys ... also giving upbeat signals, the risks to our forecast of average German gross domestic product growth of 1.5 percent in 2014 may still lie to the upside." ING DiBa economist Carsten Brzeski similarly pointed out that the ZEW index "does not have the best track record when it comes to predicting German economic activity.