Euro area: ZEW in Line with Strong Growth Outlook

* German ZEW expectations were unchanged, which was below both the
market and our expectations. But, the current condition index
surprised positively. Together with the current high Ifo
expectations this indicates strong growth in Q1 11. We expect GDP
in Germany to grow 3% in 2011.

* The ZEW indicator of inflation expectations remains high. If this
converts to higher wage requirements prior to this spring's wage
negotiations it could add to the ECB's concern of increasing
commodity prices.

* Q4 GDP growth in Euroland, Germany and France, released today, was
slightly lower than consensus expectations. The slight
disappointment in Q4 does not change the fact that German growth
in 2010 of 3.6% is the highest since the ahead of schedule 1990s.
we expect GDP in Germany to grow by 3%.

*Details*

The German ZEW expectations index increased slightly to 15.7 from 15.4
(Consensus 20.0, Danske 22.5), which was below the market and our
expectations. The current conditions index increased to 85.2 from 82.8
(Consensus 83.3, Danske 83.0) beating expectations. Our expectations
were based on increases in the Sentix indicator, increases in stock
prices and signs of a general improvement in sentiment.

Looking at some of the additional ZEW indicators we see that inflation
expectations have continued upward, doubtless due to the recent
increase in commodity prices. This could influence this spring's wage
negotiations. This is not excellent news for Germen politicians, as
they want to set a excellent example while the negotiations of a Pact
of Competiveness are ongoing.

*Outlook*

Today's release does not cause us to change our positive outlook for
2011 where we expect GDP in Germany to grow 3%. German growth has so
far been driven primarily by investments and exports. In 2011 we
expect increase in private utilization to contribute more. The high
savings rate in Germany allows room for increased spending by German
consumers. Continued strong growth is excellent news for Germany's
nearest trading partners and can contribute to push growth where they
need it the most, among euro area peripherals. We expect euro area GDP
growth to be strong in Q1 and see upside risks to our current forecast
of 2.0% growth in 2011.

*Wrapping up 2010*

Q4 GDP figures for Euroland, Germany and France, released today, were
slightly lower than consensus expectations. Growth in Q4 may have been
influenced by the unfavourable weather in Germany and France at the
end of 2010. The slight disappointment in Q4 does not change the fact
that German growth in 2010 of 3.6% is the highest since the ahead of
schedule 1990s. Also Euroland headline GDP growth in 2010 of 1.7% is a
sign of that the worst is over. But, the Peripherals continue to
struggle with reestablishing of sound fiscal balances without hurting
growth too much.

Source: ActionForex.Com