We expect the ZEW survey to report an upward correction of the economic expectations index to -35.0 in September after the sharp fall of 19.6 points to -44.1 in August, the index's lowest level since December 2011. The ZEW economic expectations are also likely to correct higher in September after experiencing a fall in August.
The large fall in the economic expectations index in August was partly skewed by event risks that have dimmed since then. In particular, after U.S. President Donald Trump announced that a 10% tariff on an additional $300 billion of Chinese goods would be imposed from September 1, his administration has since decided to delay the tariffs until December 15. Additionally, recent developments in UK Parliament have reduced the probability of a no-deal Brexit, which rose immediately after the appointment of new Prime Minister Boris Johnson. The Italian political crisis has been resolved with a new pro-EU government coalition, with associated relief in the markets, as indicated by the compression of the Italian BTP yields. Finally, there are increasing talks about the possibility of the German government implementing some fiscal loosening in order to support investment in infrastructure and the green economy.
All in all, although some of these risks have been merely delayed, we expect this to have had a positive impact on sentiment.