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German Economic Sentiment Improves Sharply, Yet Economic Outlook Negative

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Germany's economic sentiment improved strongly and at a faster-than-expected pace in September, after a slump in August, but the economic outlook remains negative, results of a survey by the ZEW - Leibniz Centre for European Economic Research showed on Tuesday.

The ZEW Indicator of Economic Sentiment for Germany climbed to -22.5 from -44.1 in August. Economists had expected a -38 reading.

The score was close to the -21.1 logged in June, but remained below the long-term average of 21.5 points.

The current conditions index of the survey, however, fell to -19.9, the lowest level since May 2010, from -13.5 in August. Economists had expected a decline to -15.

"The rise of the ZEW Indicator of Economic Sentiment is by no means an all-clear concerning the development of the German economy in the next six months. The outlook remains negative," ZEW President Achim Wambach said.

The rather strong fears that financial experts had in the previous month regarding a further intensification of the trade conflict between the USA and China did not come true, Wambach noted.

Further, there is still hope that a no deal Brexit can be avoided, he said.

Investor confidence was also boosted by the additional stimulus measures unveiled by the European Central Bank, Wambach added.

The economic sentiment index for Eurozone climbed to -22.4 from -43.6 in August. The current conditions index for euro area fell by 1.1 points to minus 15.6.

An improvement in economic sentiment can be expected in coming months if the talks between the US and China, set to resume in October, produce any solution to the heightened trade tensions.

The German economy contracted 0.1 percent in the second quarter due to weak foreign demand. Given the risks of recession, calls for stimulus have strengthened.

Last week, the ifo Institute predicted that the biggest euro are economy would slip into a recession in the third quarter. Two consecutive quarter of contractions implies a technical recession.

Ifo said the German economy will grow only 0.5 percent this year, instead of 0.6 percent estimated earlier. The projection for 2020 was downgraded to 1.2 percent from 1.7 percent.

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