German Sentiment Climbs to Three-Year High as Recovery Hopes Increase

Investor confidence in Germany surged in July, with the ZEW Economic Sentiment Index hitting 52.7, which was its highest reading since February 2022 and well above the consensus forecast of 50.3. 

The gain from June’s 47.5 reflects renewed optimism around potential US-EU trade de-escalation and Berlin’s proposed emergency stimulus package aimed at reviving industrial activity. Notably, nearly two-thirds of surveyed experts anticipate economic improvement despite lingering trade tensions.

Current conditions also improved sharply, with the ZEW’s conditions index rising to -59.5 from -72 the previous month. While still negative, it marks the strongest assessment since mid-2023, signaling momentum in core industrial sectors such as metal production, electrical engineering, and mechanical equipment. 

The sentiment uptick extended beyond Germany, with the eurozone index inching up to 36.1 and current conditions gaining 6.5 points to -24.2.

What Does This Mean for Me?

Markets responded cautiously. The euro firmed 0.2% to $1.1680, attempting to reverse a four-day slide, while German bund yields edged down to 2.69% after touching multi-month highs. The DAX held flat at 24,200 points following a streak of losses, while the Euro STOXX 50 rose 0.3%.

However, there is a fly in the ointment. President Trump’s announcement of a 30% tariff on EU imports, effective August 1, cast uncertainty over trade talks. Brussels has vowed to intensify negotiations, but investor caution still hangs in the air. 

Still, the data suggests sentiment is turning, with stimulus hopes and industrial resilience laying the groundwork for a more stable recovery across the euro area.