Germany’s economic confidence surged in June, reaching its highest level in three months, as stronger demand, investment, and supportive fiscal and monetary policies lifted expectations for a recovery. However, escalating tensions in the Middle East and rising oil prices weighed on investor sentiment, triggering declines across European stock markets.
According to the ZEW Institute, the Indicator of Economic Sentiment for Germany jumped by 22.3 points to 47.5 in June 2025 — the highest reading since March’s peak of 51.6 and well above the forecast of 35. The current conditions index also improved significantly, rising by 10 points to minus 72.0, marking its strongest monthly gain since April 2023.
“Confidence is picking up,” said ZEW President Professor Achim Wambach. “Recent growth in investment and consumer demand, combined with the European Central Bank’s interest rate cuts and Germany’s fiscal stimulus, are offering the first signs of an end to the country’s prolonged stagnation.”
The upbeat mood extended across the eurozone, where the ZEW sentiment index climbed by 23.7 points to 35.3, far exceeding market expectations. The current conditions component for the bloc also rose 11.7 points to minus 30.7.
Investor optimism was echoed in the latest Bank of America Fund Manager Survey, which showed a net 29% of respondents expect stronger European growth over the next year, driven in large part by German policy support. Meanwhile, 75% of respondents anticipate gains in European equities over the next 12 months — matching confidence levels seen in February.
Despite the optimistic data, markets turned risk-averse on Tuesday as geopolitical tensions overshadowed economic indicators. European stocks fell sharply after Israel ordered evacuations in Tehran, raising fears of deeper regional conflict. U.S. President Donald Trump’s early departure from the G7 summit added to the unease, even as he denied it was linked to ceasefire talks.
Germany’s DAX index fell 1.2% to around 23,400 points, its lowest level since May 8. Among the worst performers were Fresenius Medical Care (down 5.13%), Commerzbank (down 3.14%), Rheinmetall (down 2.52%), and Deutsche Telekom (down 2.34%). Banking shares across Europe also declined, with AIB Group falling 3.5%, and Banco Santander, Societe Generale, and UniCredit each losing more than 3%.
Oil prices rose amid fears of supply disruptions, with Brent crude climbing 1.6% to $74.50 a barrel and West Texas Intermediate rising to $72.92. The euro remained steady at 1.1558 against the U.S. dollar.
All eyes now turn to the U.S. Federal Reserve, which concludes its two-day policy meeting on Wednesday. While no interest rate change is expected, the latest geopolitical developments have introduced new uncertainty around the Fed’s next move.
