U.S. President Donald Trump signed his first executive orders on Monday, avoiding new tariffs for now but establishing the External Revenue Service, a federal agency tasked with collecting tariffs and duties. The move has fueled concerns about a shift toward protectionist trade policies under his administration.
Trump had pledged during his campaign to impose tariffs of up to 20% on all imports, including those from Europe. While no immediate measures were introduced, the creation of the External Revenue Service signals preparations for stricter trade enforcement in the coming months.
German Economic Sentiment Declines
In Germany, economic sentiment has taken a hit amid renewed trade uncertainty and the possibility of a second consecutive year of recession. The ZEW Economic Sentiment Index for January dropped to 10.3 points from 15.7 in December, missing market expectations of 15.3. The decline reflects concerns about weak private consumption, sluggish construction activity, and persistent inflation.
Despite the overall negative sentiment, there was a modest improvement in the assessment of Germany’s current economic conditions, with the sub-index rising 2.7 points to -90.4. Analysts view this as an indication that economic deterioration has not been as severe as anticipated.
Meanwhile, the broader eurozone exhibited resilience, with the ZEW Economic Sentiment Index edging up by 1.0 point to 18.0. The region’s current economic situation remained stable, with the sub-index increasing slightly to -53.8 points.
Political and Economic Uncertainty
ZEW President Achim Wambach cited Germany’s economic stagnation and geopolitical risks as key drivers of the declining sentiment.
“The second consecutive year of recession caused economic expectations in Germany to fall,” Wambach noted. He also highlighted uncertainty surrounding U.S. trade policy under Trump’s administration as a growing concern.
Germany’s political landscape adds to the uncertainty. A snap federal election is scheduled for February 23 following the collapse of Chancellor Olaf Scholz’s coalition government. Polls show the center-right CDU/CSU leading with 31%, followed by the far-right AfD at 21%. Smaller parties, including the FDP and Die Linke, are near the 5% threshold for Bundestag entry, making the election outcome unpredictable.
Markets React Cautiously
European markets showed little reaction to Trump’s initial policy moves. Germany’s DAX index remained flat at 20,990 points, near record highs. Gains from Sartorius, Siemens Healthineers, and Rheinmetall offset losses from Commerzbank and Fresenius Medical Care. The Euro STOXX 50 index also held steady.
In currency markets, the euro fell 0.6% to $1.0357, reversing part of Monday’s gains driven by the absence of immediate tariff announcements.
Looking ahead, the European Central Bank is expected to cut interest rates by 25 basis points at its meeting next week, potentially adding further pressure on the euro.
