German investor sentiment rises as Brexit shock eases: ZEW institute

- Investor confidence in Germany rebounded slightly in August, as the shock over Britain’s vote to leave the European Union began to wear off, a leading survey showed yesterday.

The investor confidence index calculated by the ZEW economic institute 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.

The index shows a “recovery somewhat from the Brexit shock,” said the institute’s president Achim Wambach.

“As before, political risks within and outside of the European Union are weighing on an optimistic economic outlook for Germany. In addition, there are further uncertainties with regards to the ability of the EU banking sector to withstand shocks,” he added in a statement.

Britain sent financial markets plunging over its referendum on June 23 in which 52 percent of the population voted to leave the EU.

In a sign that investor fears are easing, the ZEW’S sub-index measuring financial market players’ view of the eurozone economy showed a sharp improvement, jumping 19.3 points to 4.6 points.

Their assessment of Germany’s current economic situation was likewise more positive, rising by 7.8 points to 57.6 points. But analysts struck a note of caution.

Capital Economics analyst Jennifer Mckeown pointed out that August’s recovery has not reversed the sharp fall in July. The key index fell below her expectation of a rise to 5.0 points.

“The fact that the index is back in positive territory means that most investors now see German economic conditions improving in the next six months. This seems more consistent with the message from equity markets and the positive tone of the business surveys for July,” she added. Bayern LB analyst Stefan Kipar also tempered optimism over the surveys.

“The recovery in expectations should not be over-interpreted and must be taken against the backdrop of the strong retreat in July,” he said, warning that August’s data was not an indication that the European economy would be untouched by Brexit.

“Brexit will have a significant impact on Europe’s economy. The recovery in the financial markets in the past weeks appears to be rather premature from an economic point of view,” he added.