German Market Sentiment Unexpectedly Rises Before U.K. Vote

Updated on
  • ZEW expectations index climbs to 19.2 in June from 6.4
  • Britons vote in June 23 referendum whether to stay in EU

German investor confidence unexpectedly improved in June after polls on Britain’s future in the European Union showed the ‘Remain’ camp gaining ground.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, rose to 19.2 from 6.4 in May. That’s the highest level since August last year. Economists in a Bloomberg survey predicted a drop to 4.8.

The debate over whether Britain, the third-largest destination for German exports, will remain in the EU has dictated financial-market sentiment in recent weeks. The outcome of the referendum in two days remains too close to call, though bookmakers’ odds suggest the chances of a ‘Leave’ vote have faded since the murder of pro-European lawmaker Jo Cox last week.

“The improvement of economic sentiment indicates that the financial-market experts have confidence in the resilience of the German economy,” ZEW President Achim Wambach said in a statement. “However, general economic conditions remain challenging. Apart from the weak global economic dynamics, it is mainly the EU referendum in Great Britain which causes uncertainty.”

The survey was conducted among 202 analysts from June 6-20. A gauge for current conditions rose to 54.5 in June from 53.1.

Brexit Compromise

While warning that a so-called Brexit could harm economic growth in the U.K. and the 19-nation euro area, policy makers have also sought to reassure investors that they are prepared to contain the damage if Britons vote to leave the bloc.

German Finance Minister Wolfgang Schaeuble said on Sunday the EU had safeguards in place to avoid “chaotic developments.” The ECB is ready to offer euro liquidity via swap agreements and repo operations.

The ECB’s clout strengthened earlier on Tuesday when Germany’s highest court struck down cases seeking to stop the country from participating in a controversial bond-buying plan that underpinned Mario Draghi’s 2012 vow to do “whatever it takes” to save the euro. While they voiced concerns, the judges said they were bound by a ruling last year by the European Court of Justice, which said the program includes sufficient safeguards to prevent a violation of EU rules.

Analysts polled by ZEW see a 44 percent chance that Britons will vote for an exit, according to a separate statement. Survey participants said there’s a 40 percent chance that even in case of a Brexit vote, the U.K. ultimately won’t leave the EU. Schaeuble said last month that the basis for the referendum is that “in is in and out is out.”

“The Yes campaign promises that a vote for Leave will mean an exit from the EU but the rational observers we have polled think a compromise will be found,” said Friedrich Heinemann, who heads ZEW’s public-finance department. “A victory for Leave is not the end of the way.”