March 2009 German ZEW Survey

Investor sentiment in Germany unexpectedly rose to its highest level in nearly two-years as the ZEW survey increased to -3.5 from -5.8 in February. Meanwhile, the gauge which evaluates the current situation of the economy fell to -89.4 from -86.2 in the previous month, and conditions may get worse as Europe’s largest economy faces a deepening recession. As the European Central Bank forecasts the annual rate of growth for the euro-region to contract 2.7% this year, and expects economic activity to remain subdued in 2010, the governing board is anticipated to lower the benchmark interest rate further in an effort to stem the downside risks for growth and inflation. As a result, investors are pricing another 25bp rate cut by the ECB next month however, as President Trichet remains reluctant to overshoot the interest rate, the central bank may adopt additional policy tools as the economic downturn intensifies.