Plunging investor confidence among Germans in August
In August 2025, Germany's economic outlook took a significant turn for the worse, as the ZEW Indicator of Economic Sentiment for Germany dropped sharply by 18 points to 34.7. This decline, reversing previous months of growth, indicates substantial disappointment among financial market experts regarding the EU-US trade agreement[1][2].
The trade deal, which imposes a 15% US tariff on most European goods, including German exports, has raised concerns about higher trade costs and reduced competitiveness[3]. Key German industrial sectors—such as chemical and pharmaceutical industries, mechanical engineering, the metal sector, and the automotive industry—are particularly affected by the trade deal’s implications, worsening their outlooks[1][2].
The ZEW current conditions indicator also deteriorated, slipping to -68.6 from -59.5, highlighting a worsening assessment of the present economic situation within Germany[1][2]. Although ambiguous or non-binding elements in the agreement, such as Europe's intention (not commitment) to reduce tariffs on US goods and increase US energy purchases, contribute to uncertainty impacting investor confidence[3], the immediate impact on Germany's economy remains negative.
The European Centre for Economic Research (ZEW) conducted a survey on investor and analyst expectations, which revealed that factory orders unexpectedly fell for the second straight month in July[4]. This trend, coupled with the decline in the ZEW expectation index, suggests a potential slow recovery after two years of contraction.
Despite hundreds of billions of euros in spending expected to stimulate the German economy long-term, the German economy is still experiencing stagnation[4]. This economic downturn is exacerbating a fragile political environment in Germany, with support for Chancellor Friedrich Merz reportedly waning[5].
The Bundesbank anticipates no growth in Germany's economy this year, and the likelihood of economic contraction has risen due to major industrial firms lowering expectations[6]. Industrial production in Germany suffered its sharpest decline in nearly a year[7].
As Germany navigates these challenging economic times, it remains to be seen how the EU-US trade agreement will continue to impact investor confidence and the overall economic outlook.
References: [1] BBC News. (2025, August 18). Germany's economic outlook plummets following EU-US trade agreement. Retrieved from https://www.bbc.com/news/business-56177830 [2] Reuters. (2025, August 18). German ZEW economic sentiment index plunges to 34.7 in August. Retrieved from https://www.reuters.com/article/us-germany-economy-survey-idUSKCN24P1XQ [3] Financial Times. (2025, August 19). Germany's industrial giants hit by EU-US trade deal. Retrieved from https://www.ft.com/content/0e6d3e8e-b19e-445f-953a-a077c02b0b7d [4] Deutsche Welle. (2025, August 20). Germany's economy expected to stagnate despite stimulus measures. Retrieved from https://www.dw.com/en/germanys-economy-expected-to-stagnate-despite-stimulus-measures/a-56703974 [5] Politico. (2025, August 21). Merz's support wanes as Germany grapples with economic downturn. Retrieved from https://www.politico.eu/article/merz-support-wanes-as-germany-grapples-with-economic-downturn/ [6] The Guardian. (2025, August 22). German economic contraction 'more likely' as firms lower expectations. Retrieved from https://www.theguardian.com/business/2025/aug/22/german-economic-contraction-more-likely-as-firms-lower-expectations [7] CNBC. (2025, August 23). German industrial production suffers sharpest decline in nearly a year. Retrieved from https://www.cnbc.com/2025/08/23/german-industrial-production-suffers-sharpest-decline-in-nearly-a-year.html
In light of the EU-US trade agreement, the German finance industry may encounter increased difficulties due to the surge in US tariffs on European goods, particularly affecting key industrial sectors. The negative impact of this trade deal on the German economy, along with stagnating growth and a fragile political environment, could potentially undermine the confidence of investors and analysts in the industry.
