Economic sentiment in Germany and the broader eurozone has sharply declined in April, driven by rising global uncertainty and fears surrounding US trade tariffs, particularly impacting export-heavy sectors.
According to the latest ZEW Economic Sentiment survey, Germany’s economic sentiment dropped to -14 points in April, a steep fall from 51.6 points in March. This marks the lowest reading since July 2023 and represents the sharpest monthly decline since March 2022, following Russia’s invasion of Ukraine. The drop was much larger than anticipated, with economists forecasting a smaller decline to 9.5 points.
Similarly, sentiment across the eurozone plummeted to -18.5 points from 39.8 points in March, far below the expected 14.2 points. This represents the weakest eurozone sentiment since December 2022, signaling widespread concern about economic conditions.
ZEW President Achim Wambach attributed the dramatic downturn to the uncertainty surrounding US trade policy under President Donald Trump, particularly the potential impact of reciprocal tariffs on global trade. “The erratic changes in US trade policy are weighing heavily on expectations in Germany,” Wambach said, noting that the unpredictability of tariff shifts has significantly heightened global economic uncertainty.
The most affected sectors in Germany are those reliant on exports, including automotive, chemicals, metal, steel, and mechanical engineering. These industries, which had previously shown signs of recovery, are now facing renewed challenges as global trade tensions escalate.
Despite the worsening economic outlook, financial market experts do not foresee an imminent risk of rising inflation in Germany or the eurozone. This provides the European Central Bank (ECB) with room to potentially support the economy through further interest rate cuts, according to ZEW.
On the stock market, European equities responded positively to the news, despite the disappointing economic sentiment figures. The German DAX index led the gains, climbing 1.6% to 21,279 points by midday, bolstered by reduced concerns over US tariffs after Trump’s recent concessions on Chinese imports. The expectation of an ECB rate cut on Thursday also contributed to market optimism.
Among the top performers on the DAX were Rheinmetall (+3.6%), Vonovia (+3.4%), and BMW (+3%). Volkswagen and Mercedes-Benz also saw gains of 2.5% and 2.4%, respectively. Meanwhile, the luxury sector struggled, with LVMH shares falling 7.1% after a disappointing 3% decline in first-quarter sales, prompting declines in shares of Kering and L’Oréal.
In southern Europe, Italy’s FTSE MIB and Spain’s IBEX 35 rose 0.9% and 1.2%, respectively, with banking and industrial stocks driving the gains. Spanish banks, including Banco Santander and Caixabank, climbed between 2.2% and 2.7%, while Stellantis in Italy rose 4.5%.
The euro remained stable at $1.1340, and German Bund yields held steady at 2.50%, as investors await signals from the ECB regarding future monetary policy actions.
