German Economic Expectations Tumble on Trump Win, Coalition Collapse -- Update

By Ed Frankl

German economic sentiment slumped this month as domestic political turmoil and Donald Trump's election victory present new uncertainties for the economy, according to a monthly survey published Tuesday.

The ZEW Indicator of Economic Sentiment, which tracks expectations for the next six months, fell 5.7 points on month to 7.4 in November, weaker than expectations of 13.3 from a forecast of economists polled by The Wall Street Journal.

"Economic expectations for Germany have been overshadowed by Trump's victory and the collapse of the German government coalition," ZEW President Achim Wambach said.

The fact that respondents' expectations for the U.S. economy rose, while their outlook for China and the eurozone fell, supports that view, Wambach said.

President-elect Trump has repeatedly said on the campaign trail that he would raise tariffs, which economists have warned could raise barriers to global trade and raise inflation.

The ZEW survey was conducted between Nov. 4 and Nov. 11, with the U.S. election having been held on Nov. 5.

However in the more recent survey days, respondents rated economic prospects better, on news that snap elections were set to be called in Germany, Wambach added. The country's governing coalition collapsed last week after Chancellor Olaf Scholz fired his finance minister. Opposition leader Christian Democrats Friedrich Merz said Tuesday that elections would probably be held on Feb. 23.

Any future government will be more willing to be less fiscally restrictive, which is probably leading the thinking of these last respondents, Pantheon Macroeconomics economist Melanie Debono said in a note to clients.

Germany has a constitutionally enshrined limit on government borrowing, which could be reformed under a new government.

"In this respect, it is likely that the ZEW index will rise again, especially if equities continue to climb," she added.

November's falling ZEW measure contrasts with other recent surveys, such as the Ifo business surveys. However, these came before Trump's victory.

Weakening sentiment in Europe's largest economy could add to concerns at the European Central Bank, which has reduced interest rates in three of its last four meetings. A weakening economic outlook could prompt further rate cuts as it seeks to bolster the economy.

Write to Ed Frankl at [e-mail]

(END) Dow Jones Newswires

11-12-24 0634ET