Preview: German ZEW Economic Sentiment

Aside from the ZEW Economic Sentiment, the calendar for the EUR is thin this week. Therefore, EUR traders will want to keep an eye on the upcoming data.

In January 2020, the German ZEW registered its highest print since July 2015. However, the numbers coming out tomorrow are expected to nosedive.

In terms of projections, a reading above 0.0 points would paint a healthy picture. A result below that, on the other hand, would be a sign of concern.

The current expectation is for the data to come in at -25 points. This would be a huge disappointment, pointing to a severe slowdown in economic activity within a short amount of time… Especially considering that things had just started to get better.

2020 Started with a Bang

In January 2020, we saw a print of 26.7. This indicated that the German economy was on the road to recovery, with healthy business activities starting to stimulate the economy.

This was largely attributed to the conclusion of the trade war between the US and China, which improved the situation not only for Germany but also for the EU as a whole.

This is because Germany relies heavily on trade. Therefore, the end of the trade war gave new impetus and negated the pessimistic impact of the tariffs on the German economy.

But, unfortunately, the economy now stands at the mercy of COVID-19.

Coronavirus Holds the Economy Hostage

The coronavirus pandemic has stopped all the major economies of the world in their tracks.

As China is a major trade partner for Germany, a halt of production there has brought everything to a standstill.

The virus has ensured that the supply chain remains severely disrupted. Factories in the Asian Giant have been running on a skeleton staff, with many closed until the situation improves.

Closer to a Real Recession Now

Things have been gloomy for quite a while now.

In fact, over the past two years, economic activity has been limited thanks to the trade war. It not only weighed heavily on the global economy, but also prompted investors and businesses alike to adopt a wait and see approach.

Now, with the trade war wounds barely healing, it looks like the coronavirus will be far worse for the economy than the back and forth tariffs ever were.

Looking at the polls and business sentiment today, it seems that this time around, we are finally heading towards a recession.

Germany and the EU are taking stern measures to curb the spread of COVID-19. Chief among these are border closures and nation-wide lockdowns, which will undoubtedly have severe economic implications. However, the extent to which the deteriorating effects on the economy will go remains to be seen in the near future.

Don’t expect Germany and the EU to perform any miracles in the meantime. Right now, it looks like the downtrend in the economy will linger for a while.

Investors are shying away from making any commitments amidst the chaos of the coronavirus, and airports are either running at minimum capacity or are completely shut down.