According to the Federal Statistics Office, gross domestic product in the German economy gained by 0.5% in the third quarter.  Not only was this better than the second quarter’s 0.3% advance, but it also places the annualized figure higher at a 2.6% yearly pace of growth.  The report is positive for an economy that has taken the lead role in bailing out Europe’s failing periphery countries.  But, it’s not all that telling and may even overstate what is actually happening in the region’s largest economy – leaving a lot of people reviewing the ZEW survey for the truth.

Taking a look at the economic survey, it’s hard to see why anyone would think that the German economy is actually expanding.  Survey results, published by the Centre for European Economic Research showed a decline in sentiment for the ninth straight month.  An analyst would have to go back to the depths of the 2007-2008 US financial crisis to see levels comparable to the recent survey findings.  According to the ZEW survey, report findings fell to a reading of -55.2 – which is far below the historical average of about 25-30 points.

Current and future expectations surveys weren’t that much better.  Both subindex reports showed further declines, although not as bad as the headline index number.  This isn’t to say that there’s hope – the current conditions reading has been falling for the last 4 months.  The market expects this to worsen as we head into the end of the year.

The survey’s contractionary indications are relatively in line with other reports that are confirming a depressing slowdown in Germany.  According to the most recent report on output activity in the month of October, manufacturing activity fell for the first time in over 2 years.  Unemployment additionally ticked up higher in same amount of time – with recent data showing an increase in 10,000 unemployed individuals according to the Federal Labor Agency.

Throw in the trouble that Greece and Italian governments have posed over the last month and it’s no wonder the ZEW survey isn’t lower by now.  That’s why it’s no surprise that growth estimates are now being widely slashed for Germany.  Market groups and domestic think tanks are now assuming a best case scenario of 1% growth for the country – falling drastically in comparison to German 2011 growth estimates of almost 3%.

So, given the real economic picture that was presented through the ZEW economic sentiment survey, the EURUSD currency isn’t looking like its going to gain traction any time soon.  This is likely to be compounded by further disruptions in the creating of new governments in both Italy and Greece as well as increasing speculation on the rising costs of Italian debt.  As a result, look for the Euro to have a very difficult time crossing above 1.3800 and beyond in the short term.