Germany’s Economic Sentiment Reaches Seven-Month High Amid Investor Optimism
Economic sentiment in Germany surged in February, with the ZEW Indicator of Economic Sentiment climbing 15.7 points to 26.0, its highest level since July 2024. The sharp increase reflects growing optimism surrounding European Central Bank (ECB) rate cuts, potential fiscal stimulus, and an improved outlook for the construction sector.
The jump in sentiment, which exceeded market expectations of 20, marks the strongest monthly increase in two years. The improvement comes just days before Germany’s federal elections, with investors hopeful that a new government will implement policies to revive growth in Europe’s largest economy.
Economic Recovery Hopes Grow
The ECB’s recent rate cut of 25 basis points to 2.75% has fueled expectations of further monetary easing, while speculation around government stimulus measures has bolstered confidence in economic recovery.
“Shortly before the federal election, economic expectations have clearly improved,” said ZEW President Achim Wambach, PhD. “This rising optimism is probably due to hopes for a new German government capable of action.”
Wambach also noted that private consumption is expected to strengthen in the next six months, while lower borrowing costs could revive the struggling construction sector.
However, despite the improved outlook, the current economic situation remains weak. The ZEW Indicator for the present state of the economy edged up slightly by 1.9 points to -88.5, indicating that challenges persist.
Eurozone Sentiment Also Improves
Optimism was not limited to Germany. The ZEW Economic Sentiment Indicator for the Eurozone increased by 6.2 points to 24.2, while the assessment of the bloc’s current economic situation rose by 8.5 points to -45.3.
The improvement in investor confidence comes as inflation expectations shift downward. A Bank of America survey found that 59% of fund managers expect lower inflation in Europe in the coming months, a significant jump from previous expectations.
Investors Turn Bullish on European Markets
Investor sentiment toward European equities has also turned increasingly positive. The Bank of America’s February fund manager survey revealed that 45% of investors now expect stronger growth in the next 12 months, a sharp increase from just 9% in January.
Confidence in German fiscal stimulus and further ECB rate cuts are seen as the primary drivers of this optimism. As a result, European stocks are now expected to be the best-performing global equity market in 2025, with 12% of investors overweight on European equities—a dramatic turnaround from December, when 25% were underweight.
Markets React Amid Geopolitical Uncertainty
Despite the positive economic data, markets remained muted as geopolitical concerns took center stage. The DAX index briefly touched a record high of 22,851 points before settling at 22,750 points.
European leaders met in Paris to discuss Ukraine and defense spending, but no major policy announcements were made. Meanwhile, U.S. and Russian officials were set to meet in Saudi Arabia for conflict resolution talks, further influencing market sentiment.
The euro edged 0.2% lower to 1.0460 against the U.S. dollar, while the Euro STOXX 50 dipped 0.1%. Notable market movers included ING (+1.4%) and Société Générale (+1.3%), while Kering (-1.8%) and Carrefour (-1.5%) were among the biggest losers.
As Germany heads into its federal elections, economic and political uncertainties remain, but February’s sharp rise in sentiment signals a potential turning point for the country’s economic recovery.
Business
Apple Halts Advanced Data Protection in UK After Government Demand for Access
Apple is removing its top-tier data encryption feature, Advanced Data Protection (ADP), from UK users following a government request for access to user data. The decision means that Apple customers in the UK will no longer be able to activate ADP, which ensures that only account holders can access their iCloud-stored content through end-to-end encryption.
The UK government made the request earlier this month, seeking the ability to access encrypted data under the Investigatory Powers Act (IPA), which mandates that companies must provide information to law enforcement agencies upon request. While Apple has consistently resisted creating encryption backdoors, citing potential misuse by cybercriminals, the company confirmed it would disable ADP activation in the UK starting Friday at 3 p.m. GMT. Existing users will also lose access at a future date.
“We are gravely disappointed that UK customers will no longer have access to this security feature,” Apple said in a statement. “We have never built a backdoor or master key into our products and never will.”
The Home Office declined to comment on the specific order, stating, “We do not comment on operational matters.”
Cybersecurity experts have criticized the government’s move, arguing that it undermines online privacy. Professor Alan Woodward of Surrey University called the decision “an act of self-harm” that weakens security for UK users. “It was naïve of the UK government to think they could dictate terms to a US technology company on a global scale,” he added.
The development has sparked backlash from privacy advocates, who describe the order as an “unprecedented attack” on individual privacy. Concerns have also emerged in the United States, where two senior politicians warned that the UK’s demands could jeopardize intelligence-sharing agreements between the two countries.
Despite the removal of ADP in the UK, the feature will remain available to users in other countries, raising questions about the global impact of the UK’s IPA order. In its statement, Apple emphasized its commitment to user privacy and expressed hope that it could restore ADP in the UK in the future. “Enhancing the security of cloud storage with end-to-end encryption is more urgent than ever before,” the company stated.
This latest dispute highlights growing tensions between governments seeking access to encrypted data and technology companies prioritizing user privacy, with potential implications for international regulatory frameworks and cross-border data security.
Business
European PMI Data Reveals Mixed Economic Signals
February economic data across Europe showcased divergent trends, with the UK’s services sector seeing growth, Germany’s manufacturing hitting a two-year high, and France continuing to face challenges.
The flash estimate for France’s HCOB Manufacturing PMI rose to 45.5 in February from 45 in January, according to S&P Global. While still indicating contraction, this was the mildest decline since May 2024. The services sector, however, fell more sharply, with its PMI dropping to 44.5 from 48.2, driving the composite PMI to 44.5—the steepest contraction since September 2023. Economist Dr. Tariq Kamal Chaudhry of Hamburg Commercial Bank noted that shrinking order intakes and subdued future activity expectations remain key concerns.
In contrast, the UK’s services sector expanded, with its PMI rising to 51.1 from 50.8, surpassing analyst expectations. Despite this growth, new work fell at the fastest rate since November 2022 due to weakened business investment and budget cuts. The UK manufacturing sector continued to contract, with its PMI falling to 46.4 from 48.3, missing market forecasts.
Germany’s manufacturing PMI climbed to 46.1, its highest in two years, supported by slower declines in factory output. Meanwhile, the services sector experienced a slight dip, with its PMI at 52.2 compared to 52.5 in January. Overall, Germany’s private sector remains affected by manufacturing challenges, though the pace of contraction has slowed.
Across the eurozone, the composite PMI held steady at 50.2, signaling marginal growth but falling short of expectations. The manufacturing PMI rose to 47.3 from 46.6, while the services PMI dropped to 50.7 from 51.3. Kyle Chapman, FX markets analyst at Ballinger Group, noted that while modest growth is preferable to contraction, consumer caution due to political and economic uncertainty continues to limit recovery.
In the UK, Chapman pointed to the impact of rising payroll taxes on employment, with one-third of surveyed companies linking lower staffing levels to the October budget. Weak demand and stagnant productivity levels are further hindering the country’s economic performance.
The latest PMI data highlight the complex economic landscape in Europe, with some sectors showing signs of resilience while others grapple with ongoing challenges, influenced by both domestic policies and broader global conditions.
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