Germany’s economic sentiment climbed to its highest level in over three years in July, fuelling hopes that Europe's largest economy may be on a firmer path to recovery.
The ZEW Indicator of Economic Sentiment, which gauges investor expectations for the German economy, rose to 52.7 points this month, up from 47.5 in June and well above economist expectations of 50.3.
This marks the strongest reading since February 2022, shortly before Russia’s invasion of Ukraine disrupted global trade and energy flows.
“After the strong improvements of the past two months, the positive sentiment among respondents is becoming more firmly established,” said ZEW President Professor Achim Wambach. “Despite ongoing uncertainty due to global trade conflicts, nearly two-thirds of the experts expect the German economy to improve.”
Germany’s ZEW Current Conditions index rose to -59.5 in July 2025, its highest level since June 2023, up from -72 the previous month and outperforming expectations of -66.
Wambach pointed to hopes of a speedy resolution to the US-EU tariff standoff, alongside the German government’s proposed emergency investment programme, as key drivers of optimism.
The upbeat sentiment was particularly notable in expectations for mechanical engineering, metal production and the electrical engineering sector.
The positive sentiment extended to the broader eurozone. The ZEW sentiment index for the single-currency bloc rose modestly to 36.1 in July, up 0.8 points from June.
The assessment of current conditions in the eurozone also improved, though it remained in negative territory at minus 24.2, a 6.5-point gain from the previous month.
Markets steady as trade tensions linger
Financial markets reacted with caution. The euro gained 0.2% against the US dollar to $1.1680, on track to snap a four-day losing streak.
Bund yields dropped 3 basis points to 2.69%, after hitting on Monday their highest levels since early April.
Still, investor nerves were apparent after US President Donald Trump announced a new 30% tariff on European Union imports from 1 August. The European Commission has pledged to intensify negotiations to avert a trade-war escalation.
Germany’s DAX index was unchanged at 24,200 points, consolidating after three consecutive sessions of losses. The broader Euro STOXX 50 rose 0.3%, supported by strength in industrial and automotive names.
Among top gainers, ASML Holding advanced 2.4%, followed by BASF (1.92%), Mercedes-Benz (1.74%), Volkswagen (1.45%) and BMW (1.44%). On the downside, L’Oréal fell 1.35%, Orange slipped 1.23% and Telefónica declined 0.91%.
