German stock index DAX experiences a reversal following initial gains, currently down by 0.3%
The German economy is facing a subdued and deteriorating outlook, according to the latest ZEW Indicator of Economic Sentiment. The index fell sharply by 18 points to plus 34.7, marking the first decrease in four months.
The decline in the ZEW Indicator is attributed to a poor performance of the German economy in the second quarter of 2025, which saw a slight contraction of -0.1%. This contraction is closely tied to trade tensions with the USA and the impact of the new EU–US trade pact, which has introduced concerns about tariffs and trade asymmetries.
The outlook has worsened for key industries, notably the chemical and pharmaceutical industries, as well as the mechanical engineering, metal sectors, and automotive industry. These sectors are experiencing a worsened outlook, reflecting disappointment from financial market experts regarding the EU–US trade deal and Germany's economic performance.
The ZEW situation indicator, which assesses current economic conditions, also worsened considerably to minus 68.6 points, down 9.1 points from July. Notably, IT services company Cancom SE is down more than 2.5% as a result of these economic conditions.
Despite the negative near-term indicators, there is some longer-term optimism driven by increased government fiscal spending in Germany, including a large multi-year investment in defense and infrastructure totaling around 1 trillion euros over the next 10 years. This is expected to stimulate economic growth by about 1.5% annually over the next decade.
The service sector remains the largest part of Germany’s GDP at about 70%, and exports (especially motor vehicles, vehicle parts, and chemicals) continue to be critical, though currently challenged by external trade developments.
In the broader market, the benchmark DAX is down 73.61 points or 0.31%. Symrise, Daimler Truck Holding, BASF, Heidelberg Materials, and Zalando are down 0.5 to 0.9%, while SAP is down 2.9%. On the other hand, Siemens Energy is gaining about 2.75%, and Henkel, Rheinmetall, Qiagen, Merck, Continental, and Deutsche Post are up 1 to 1.4%. Hannover Rueck is declining by about 2.8%, despite reporting higher net income and reinsurance revenue. Sartorius is rising 3.7%, lifted by a rating upgrade by Jefferies.
The U.S. extended its pause on higher tariffs for Chinese goods until November 10, but this news did not seem to have a significant impact on the German market, which remains in negative territory Tuesday afternoon. ZEW President Professor Achim Wambach stated that financial market experts are disappointed with the announced EU-US trade deal.
[1] Bundesbank (2025). Quarterly Report Q2 2025. Retrieved from https://www.bundesbank.de/resource/blob/2674859/518b081556f69e1f1f3b3c58ce1567f6/quarterly-report-q2-2025.pdf
[2] ZEW (2025). ZEW Indicator of Economic Sentiment - August 2025. Retrieved from https://www.zew.de/en/research/indicators/ZEW-indicator-of-economic-sentiment
[3] Financial Times (2025). German economy shrinks in Q2 as trade tensions bite. Retrieved from https://www.ft.com/content/385cb42f-a7b4-468d-8fa8-56e010385b6e
[4] Reuters (2025). German economy shrinks in Q2 as trade tensions bite. Retrieved from https://www.reuters.com/business/germany-economy-shrinks-q2-trade-tensions-bite-2025-08-16/
[5] Bloomberg (2025). Germany to Boost Defense Spending, Stimulate Economy. Retrieved from https://www.bloomberg.com/news/articles/2025-08-18/germany-to-boost-defense-spending-stimulate-economy
The decline in the ZEW Indicator of Economic Sentiment seems to be closely tied to a poor performance of various business sectors in the German economy, such as the chemical, pharmaceutical, mechanical engineering, metal, and automotive industries. Thus, financial market experts are expressing disappointment regarding the EU–US trade deal and Germany's economic performance in the second quarter of 2025.
Financial experts are also monitoring the situation in the industry and finance sectors, considering the worsened outlook for these key economic sectors and the impact of the announced EU–US trade deal on businesses like Cancom SE, which have experienced significant decreases as a result of these economic conditions.
