The ZEW Indicator of Economic Sentiment for Germany surged by 39.2 points to 25.2 in May 2025, rebounding sharply from a near two-year low of -14.0 in April and far surpassing market expectations of 11.9.
German investor sentiment rebounds sharply in May
This marks the strongest month-on-month improvement since mid-2020, signaling a notable shift in investor confidence. The survey indicates growing optimism for the next six months, driven by a combination of political and economic developments, including the formation of a new federal government, progress in resolving key tariff disputes with major trading partners, and signs of stabilizing inflation, which had previously dampened consumption and investment activity.
Nearly all sectors reported improved sentiment in May, reflecting the broad-based nature of the recovery. The outlook is particularly bright for the banking sector, which is expected to benefit from a more stable regulatory environment and improving credit demand. Export-oriented industries such as automotive, chemicals, metals, machinery, and steel also reported a strong upswing in expectations, as global supply chains show signs of normalization and key export markets experience a revival in demand.
More ECB cuts expected
Furthermore, the recent interest rate cut by the European Central Bank—and growing expectations of further monetary easing in the coming months—are seen as especially supportive for a recovery in the construction sector, which has faced headwinds from high financing costs and weak order books. Respondents also anticipate a rebound in domestic demand, which has been sluggish in recent months amid consumer caution and restrained spending patterns. The expected improvement in household purchasing power, combined with lower inflation expectations, is likely to provide an additional tailwind to Germany's economic momentum in the second half of the year.
Meanwhile, despite the more optimistic forward-looking sentiment, Germany’s current economic assessment held steady at a historically low level, dipping a marginal 0.8 points to -82.0, underlining the ongoing weakness in the present economic environment and suggesting that the recovery is still in its early stages.
