Investor sentiment regarding the euro zone economy took a downturn in June, largely driven by negative expectations for Germany, the largest economy in Europe, according to a survey conducted by economic analysis company Sentix.
The monthly survey, which assesses whether investors hold positive or negative views on growth prospects, revealed a drop in sentiment to -17 points for June, compared to -13.1 in May. This figure was even lower than the expected -15.1 predicted by analysts surveyed by Reuters.
The survey highlighted a significant decline in the index reflecting the current economic situation, falling to -15.8 from -7.0. This alarming drop raises concerns regarding the onset of a recession in the Eurozone, as indicated by Sentix. The company suggested that the underlying cause of the Eurozone’s economic distress is likely linked to the weakness of the German economy, further stating that Germany remains the “biggest problem child” within the Eurozone.
The German economy officially entered a recession in early 2023, based on estimates from the country’s statistics office. This downturn can be attributed to household spending, a significant driver of growth in the European economic engine, which succumbed to pressures stemming from high inflation. While German industry experienced a strong first quarter due to eased supply chain constraints and a backlog of orders, recent declines in incoming orders have constrained companies to maintaining their current activities rather than expanding them.
The Sentix index specifically for Germany dropped to its lowest level since November of the previous year, reaching -21.1 in June, compared to -14.5 the previous month. Sentix emphasized the challenges faced by the German Federal Minister of Economics, noting that the narrative being written is far from a positive summer fairytale.
Sentix conducted the survey between June 1st and 3rd, polling a total of 1,197 investors. The results indicate growing pessimism among investors regarding the economic prospects of the euro zone, predominantly influenced by concerns surrounding the German economy. As investor sentiment plays a crucial role in shaping economic performance, these findings suggest that the euro zone may face further challenges in the near future.
