What Is the Centre for European Economic Research?

The Centre for European Economic Research is a nonprofit economic research institution based in Mannheim, Germany. It provides advice on economic issues and policy to its clients, with its work focusing mainly on European economies.

Key Takeaways

  • The Centre for European Economic Research, or ZEW, is a economic think-tank based in Mannheim, Germany.
  • ZEW economists study a wide range of applied economic topics, including the production of the ZEW Indicator of Economic Sentiment.
  • ZEW’s research and indicators are well known in German and beyond as tools to help businesses, investors, and policy makers navigate the economy. 

Understanding the European Economic Research

The Centre for European Economic Research was founded in 1990 and its name in German is Zentrum für Europäische Wirtschaftsforschung (ZEW). It is a limited liability company (LLC).

ZEW is funded by the state of Baden-Württemberg and the German government as well as through research projects. It receives about 53% of its funding from federal and state government institutions, with the rest of its funding coming from research projects which are funded by outside institutions including the European Commission, private companies, and local authorities.

ZEW has about 176 employees as of 2018 and its research covers a wide range of economic areas, including environmental research, public finance, international finance, and labor issues among others. According to its website, ZEW's main objective is to study the "optimal performance of markets and institutions in Europe," and in addition to research, the organization also produces a book series and some magazines.

ZEW researchers and analysts study economic topics ranging from labor markets to economic development to the political economy of the EU, with an emphasis on applied research. Though most of its research focuses on microeconomics and microeconometric studies, ZEW is well-known for its macroeconomic ZEW Indicator of Economic Sentiment, an economic indicator that is created as a result of the ZEW Financial Markets Survey, which is a monthly survey of economists and experts about financial market and macroeconomic trends.

The ZEW Economic Sentiment Indicator

ZEW has conducted the ZEW Financial Markets Survey since 1991. This survey contains analysis from hundreds of economists and analysts, and the ZEW Economic Sentiment, which is published as a result from findings from this survey, is a leading indicator for Germany’s economy.

Investors can use sentiment indicators such as the ZEW Economic Sentiment Indicator to help them understand the stock market’s mood. A positive index value indicates optimism whereas a negative index value indicates pessimism. In general, optimistic sentiment is believed to signal strong economic conditions for Germany going forward. As such the Economic Sentiment Indicator is often used by foreign currency traders and others to base expectations for exchange rates, DAX performance, and other variables. 

To conduct the survey, every month, ZEW gathers insights and sentiments from from about 300 economists and analysts from banks, insurance companies, and financial departments of selected corporations. They are asked to provide their six-month expectations for the economy, specifically about inflation rates, oil prices, interest rates, stock markets, and exchange rates.

The survey includes the markets and economic futures of a group of countries including Germany, the United States, Great Britain, Japan, France, and Italy. According to the ZEW website, the survey has also collected information about Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovenia, and Croatia since 1999.