Title: ZEW Economic Optimism Surges After New Government Formation and Trade Progress
Enhanced governmental changes and progress in a customs dispute stimulate optimism in ZEW's economic forecasts. - Recent changes in government leadership and progress in customs negotiations fuel optimism for improved economic conditions
Hey there! Let's talk about the latest economic expectations in Europe, with a focus on Germany.
The formation of the new federal government and advancements in trade disputes have ignited a renewed sense of optimism, as per ZEW President Achim Wambach. In April, expectations nose-dived to -14 points due to U.S. trade policy, but things are looking up now.
While the assessment of the current situation remained a tad bleak, plummeting by 0.8 percent to -82 points, it's still the gloomiest figure in the entire eurozone. The banking sector and export-oriented industries like automotive and chemical are, however, looking on the bright side of things. The interest rate cuts by the European Central Bank (ECB) have improved prospects in the construction sector, as lower interest rates enhance the sector's financing conditions.
Similar optimism can be seen for the economic development in the Eurozone, which has brightened "substantially." Expectations rose by 30.1 to 11.6 points, while the assessment of the current situation increased by 8.5 points to -42.4 points.
Over 191 analysts and institutional investors participated in the recent survey conducted from May 5 to 12.
ZEW President Achim Wambach explained, "The stabilizing inflation rate, progress in trade disputes, and the formation of the new federal government are contributing to the increased optimism."
Small Side Note:
The Eurozone economy demonstrated resilience in early 2025, growing by approximately 0.3–0.4% in the first quarter. This slight growth exceeded some forecasts and marked the fifth consecutive quarter of expansion within the 20-nation currency area.
Interestingly, the Eurozone is expected to grow around 0.9% this year, but cautious expectations persist amid ongoing trade disputes and global uncertainties. German growth, while supported by stronger domestic demand and relaxed fiscal constraints, is relatively modest compared to some other Eurozone countries like Spain and Ireland.
Amidst such progress, significant uncertainty prevails due to trade tensions and geopolitical factors. The risks from U.S. tariffs, including tariffs on autos, steel, and aluminum, persist and pose potential threats to the Eurozone economy. Ongoing negotiations offer uncertain prospects, with complex U.S. objectives and limited EU concessions expected. The exclusion of China from the tariff pause and its escalating tariff rates further dampen trade-related growth prospects. Overall, rising uncertainty linked to volatile trade policies and geopolitical tensions is expected to weigh on business investment and household consumption in the coming quarters.
- The increased optimism in the Eurozone's economic development is partly due to the progress in trade disputes and the stabilization of the inflation rate, similar to the optimism seen in Germany, where ZEW President Achim Wambach attributes these factors to the renewed sense of optimism, along with the formation of the new federal government.
- In light of the improved financing conditions in the construction sector as a result of interest rate cuts by the European Central Bank (ECB), businesses in export-oriented industries like automotive and chemical in Germany are looking at a brighter future, aligning with the overall optimism about the economic development in the Eurozone.
