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ZEW survey is latest in long line of shocking euro zone data

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Ben Brettell, Senior Economist, Hargreaves Lansdown comments on the latest ZEW survey data showing that Economic sentiment in Germany has turned negative for the first time since 2012…

October’s reading was far worse than economists had forecast and means the index has now fallen for ten successive months.

The most severe problems in the euro zone have so far been limited to the periphery, with the core remaining in relative good health. However, in recent months we have seen a shift. Some peripheral economies are now registering decent growth, whilst the core looks in trouble.

Together, Germany, France and Italy are responsible for 66% of euro zone GDP. None registered any positive growth in Q2, with Germany and Italy contracting 0.2% and France flatlining. Looking forward the signs aren’t good – in addition to today’s ZEW survey, data released last week show German exports declined 5.8% in August. As Russia’s biggest EU trading partner, Germany stands to lose most from Russian trade sanctions.

Given the relative size of these three economies in the euro zone it is perfectly possible they will drag the whole bloc into recession. The threat of deflation was also highlighted again today, with prices falling 0.2% year-on-year in both Italy and Spain. I believe Mario Draghi will eventually be forced to embark on a quantitative easing programme – though he will have to overcome stiff opposition from the Bundesbank first.

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