Germany’s economic sentiment dropped in November as internal political gridlock and Trump’s election stoked concerns. The ZEW index fell from 13.1 to 7.1, with experts citing fears over Trump’s tariffs and stalled reforms in Germany’s coalition government.
ADVERTISEMENTGermany’s economic sentiment took a sharp downturn in November, with analysts pointing to a potent combination of internal political gridlock and global uncertainties following Donald Trump’s election in the United States.
Despite a brief recovery in October, the mood among Germany’s financial experts has soured once more, weighed down by the enduring struggles of the country’s coalition government and Trump’s unpredictable trade agenda.
The ZEW Economic Sentiment Index, which tracks the outlook of up to 300 economists, bankers, and industry analysts, fell to 7.1 points in November, down from 13.1 in October and significantly below both expectations of 13 points and the one-year average of 25 points.
This latest ZEW reading is the index’s second-lowest level in 2024. Views on Germany’s current economic situation have also soured. The ZEW’s current situation index, which tracks how financial market experts perceive present economic conditions, dropped by 4.5 points to -91.4.
Concurrently, the Federal Statistical Office confirmed on Tuesday that Germany’s headline inflation rate rose to 2% year-over-year in October, up from 1.6% in September and in line with earlier estimates.
Eurozone outlook dims as political and economic risks rise
Germany’s economic outlook mirrors broader concerns across the eurozone.
In November, the ZEW Economic Sentiment Index for the eurozone declined from 20.1 points in October to 12.5, missing the market’s expected figure of 20.1. Similarly, views on the eurozone’s current situation fell, with the index decreasing by 3.0 points to -43.8.
According to ZEW President Achim Wambach, Germany’s economic sentiment reflects ongoing concerns over political and trade risks, particularly with respect to recent developments in the United States.
“Economic expectations for Germany have been overshadowed by Trump’s victory and the collapse of the German government coalition,” said Wambach.
He added that economic sentiment in the US is rising, while outlooks for China and the eurozone have grown more pessimistic.
Wambach explained, “The outcome of the US presidential election is likely to be the main reason for this…a very dynamic development of economic expectations.”
Germany’s internal challenges meet geopolitical tensions
Wambach highlighted that Germany’s economic challenges are compounded by ongoing geopolitical tensions, with Donald Trump’s trade policies expected to add further strain.
“Europe benefits from open markets.
“Trump, on the other hand, wants to introduce higher tariffs and reduce taxes for companies in the USA. This will exacerbate Europe’s economic problems, as European companies will feel even more compelled to produce in the USA instead of delivering finished products there,” he noted.
Wambach also stressed that Germany urgently needs a more proactive government to drive an investment agenda, bolster infrastructure, and focus on Europe’s economic security.
ADVERTISEMENTHe emphasised that merely adhering to fiscal conservatism won’t solve Germany’s structural issues: “Germany urgently needs a government capable of taking action that reduces climate policy to its efficient core,” Wambach said, calling for a robust, investment-focused approach to ensure resilience amid mounting economic headwinds.
Market impacts: Stocks and euro decline
The German DAX index fell by 0.7% during Tuesday morning trading, mirroring declines across European indices, with the broader Euro STOXX 50 also falling by 0.7%.
Bayer AG, the pharmaceuticals and crop sciences giant, saw shares plummet over 11% due to underwhelming earnings and downgraded future projections.
Across the broader eurozone market, France’s CAC 40 led losses with a drop of over 1%. Shares of luxury companies such as Kering and LVMH fell 4.6% and 2.2% respectively, with investors wary of Trump’s proposed trade restrictions, which could harm European exports to key markets, including China.
ADVERTISEMENTInvestor anxiety over a Trump administration was further stoked by speculation that US Senator Marco Rubio, a well-known hawk on China, could be tapped as Secretary of State.
Meanwhile, the euro continued its slide against the US dollar, falling 0.4% to reach a seven-month low at around 1.06 levels.
The single currency has lost value in seven out of the past eight weeks, largely due to expectations that Trump’s trade policies could strengthen the dollar by curbing imports and stimulating domestic growth.