German economic confidence strengthened significantly at the start of the year to the highest level since 2015, as the signing of the Phase 1 deal between the US and China eased trade tensions, survey results from the ZEW - Leibniz Centre for European Economic Research in Mannheim showed on Tuesday.
The ZEW Indicator of economic sentiment index surged more-than-expected to 26.7 in January from 10.7 in December. This was the highest score since July 2015, when the score was 29.7. Economists had forecast a reading of 15.0 for January.
The indicator for the current situation improved sharply to -9.5 in January from -19.9 a month ago. The expected level was -13.5.
The continued strong increase of the ZEW Indicator of Economic Sentiment is mainly due to the recent settlement of the trade dispute between the USA and China, ZEW President Achim Wambach said. This gives rise to the hope that the trade dispute's negative effects on the German economy will be less pronounced than previously thought, he added.
Further, the largest euro area economy developed slightly better than expected in 2019. Despite improved outlook, growth is still expected to remain below average, Wambach said.
The International Monetary Fund downgraded Germany's growth projection for 2020, citing sluggishness in manufacturing. The lender forecast the economy to grow 1.1 percent this year and 1.4 percent in 2021.
Financial market experts' confidence concerning the economic development of the euro area also improved notably, the ZEW survey showed. The economic sentiment index for euro area climbed 14.4 points to 25.6 in January and the indicator for current situation gained 4.8 to -9.9.