Serious Improvement in Economic Outlook: ZEW Survey
Enhanced Government Cabinet and Advancements in Trade Dispute Lead to Uptick in ZEW Economic Forecasts - Economic anticipation escalates following fresh cabinet appointment and customs dispute resolution significant moves.
The forming of a new German government, recent progress in trade disputes, and a steady inflation rate have sparked a resurgence of optimism among economic analysts and institutional investors, according to ZEW President, Achim Wambach.
In April, hope for a better economic future had taken a hit, with expectations plummeting to -14 points - primarily due to concerns over U.S. trade policy. However, recent developments have managed to ameliorate some of the pessimism.
While there has been a slight dip in the assessment of the current situation, the index dropped by 0.8 percent to -82 points. This makes it the poorest performance in the Eurozone at the moment, as stated by ZEW.
There's been a notable brightening of expectations for the banking sector, as well as export-oriented industries such as automotive and chemicals. Good news from the European Central Bank (ECB) regarding interest rate cuts has boosted hopes in the construction sector, as it promises improved financing conditions for the sector.
There's been a sizable increase in the optimism foreseen for the Eurozone economic outlook. It spiked by 30.1 points to 11.6 points. The current assessment, on the other hand, stands at -42.4 points - a rise of 8.5 points.
Overall, the survey comprised the input of 191 participants from May 5-12, according to ZEW.
Germany's Predicament
The German economy seems to be recovering from a minor recession, having reported zero growth in Q1 2025. This fits in with economists' expectations and highlights a gradual recovery process [1][2]. Strict fiscal reforms are anticipated to underpin the country's economic growth and contribute to the broader Eurozone economy [3]. However, trade uncertainties and U.S. tariffs have led to revised forecasts for the year, predicting a 0.9% GDP growth for the Eurozone in 2025 [3].
The Automotive and Chemical Industries
These sectors have their own set of challenges, with the automotive sector being hit hardest by ongoing trade tensions with the U.S. and the consequential tariffs. The uncertainty looming over the industry's expansion is considerable [3].
The chemical industry's performance hasn't been explicitly tracked in recent times, but the broader economic conditions, along with ongoing trade disputes, could weigh negatively on its performance [4]. As a sector sensitive to global demand and trade agreements, it may experience fluctuations in line with the overall trend.
Influence of the Federal Government
The election of a new German government might set off policy changes that could favourably impact the economy, especially if improved fiscal stability and growth are prioritized. The effect these changes would have on specific sectors, such as automotive and chemicals, depends on the policies implemented.
Development in Trade Disputes
The U.S. has paused some tariffs and EU retaliatory measures, alleviating some pressure, but uncertainty remains brutal due to continuous negotiations and conflicting objectives [3]. The exclusion of China from these tariff pauses means that ongoing escalation of tariffs with China remains a potential threat to Eurozone trade.
The circumstances surrounding a potential resolution to these trade disputes are uncertain at this point, and it remains to be seen how it will affect the volatile economic forecasts for impacted sectors like automotive and possibly, the chemical industry [3].
- The boosted optimism in the economic outlook for the Eurozone is partly attributed to the good news from the European Central Bank (ECB) regarding interest rate cuts, which has improved financing conditions for the construction sector and other export-oriented industries like automotive and chemicals.
- In influencing the economic growth of Germany, the election of a new German government might set off policy changes that could favorably impact the economy, especially if improved fiscal stability and growth are prioritized, potentially benefiting sectors like automotive and chemicals.
