Anticipated expansion in the economy for August 2025 sees a significant decline
The Centre for European Economic Research (ZEW) reported a significant drop in the economic sentiment index for Germany in August 2025, with a reading of -68.6 points. This index is 18.0 points lower than the previous month's level and 34.7 points lower than the eurozone's economic situation indicator.
The poor economic performance in Germany during the second quarter of 2025, the rising unemployment rate, and the disappointment with the newly signed EU-US trade deal are primary factors contributing to the worsening sentiment.
The trade agreement has left key German industrial sectors exposed to steeper tariffs, creating concerns about asymmetrical burdens on export industries such as chemicals, pharmaceuticals, mechanical engineering, metal sectors, and automotive. This has hurt investors' outlook and led to a notable disconnect between business confidence and investor pessimism.
The unemployment rate in Germany is nearing three million unemployed people in July 2025, indicating ongoing economic weakness and labor market softness. The outlook for the chemical and pharmaceutical industry has also deteriorated, with mechanical engineering, metal production, and the automotive industry also heavily affected.
ZEW President Achim Wambach commented on the current results, stating that they are contributing to the deterioration. The situation indicator for the eurozone stands at -31.2 points, with the deterioration in expectations for the currency union also contributing to the overall economic downturn.
The first estimates for the growth of the eurozone in the second quarter of 2025 were better than those for Germany. However, the overall economic outlook is still negative, with fragile domestic demand, economic stagnation, and expectations of the European Central Bank (ECB) interest rate policy remaining cautious dampening optimism for a near-term economic rebound.
These factors combined have sharply undermined the economic sentiment index, marking a pronounced worsening of confidence in Germany’s near- to medium-term economic prospects in August 2025. The assessment of the economic situation for the eurozone is worse than that of Germany, standing at -31.2 points. This is 7.0 points below the previous month's level for the eurozone.
Investors' concern regarding the potentially harmful impact of the EU-US trade deal on certain business sectors, such as chemicals, pharmaceuticals, mechanical engineering, metal sectors, and automotive, is contributing to a notable disconnect between business confidence and investor pessimism in the finance industry.
The ongoing economic weakness in Germany, as shown by the rising unemployment rate and the deteriorating outlook for sectors like chemicals and pharmaceuticals, has significantly affected business, further exacerbating the economic downturn.
