reduced expectations for Germany's economy following the US customs agreement
In a significant turn of events, the economic sentiment towards Germany has taken a hit in August 2025, primarily due to the disappointment surrounding the recently announced EU-US trade agreement and the poor performance of the German economy in the second quarter.
This decline was evident in the ZEW Indicator of Economic Sentiment, which dropped sharply by 18 points to 34.7. This reversed part of the recovery seen in July, as the barometer for economic expectations over the next six months plummeted[1][3][5].
The EU-US trade deal, which was seen as asymmetrical and unfavorable to German industrial interests, has introduced new challenges. These include steeper tariff burdens that have affected key German industries such as the chemical and pharmaceutical sectors, mechanical engineering, metal sectors, and the automotive industry[1][3][5].
The disappointment over the trade agreement and the worsening economic conditions on the ground have also been reflected in the ZEW current conditions index. This index fell to -68.6 from -59.5, indicating a significant deterioration in the current economic situation[1][2][3][5].
The survey, conducted by the Mannheim Centre for European Economic Research, questioned 182 investors and analysts on Tuesday. The stock market experts' assessment of the current economic situation was more negative, as indicated by a fall in the barometer for the stock market. The barometer dropped by 9.1 points to minus 68.6 points[1][4].
To the surprise of many, the actual drop was more significant than economists had predicted. While they had anticipated a drop to minus 65.0 points, the actual drop was more pronounced[1].
In conclusion, the combination of disappointment over the EU-US trade deal—which was seen as unfavorable for key German sectors—and Germany’s weak second-quarter economic performance led to the sharp drop in economic sentiment as captured by the ZEW and reflected in Reuters poll analyses[1][2][3][5].
[1] [Source 1] [2] [Source 2] [3] [Source 3] [4] [Source 4] [5] [Source 5]
- In response to the unfavorable EU-US trade agreement and the poor performance of the German economy, the community policy and employment policy within German industries, such as the chemical and pharmaceutical sectors, mechanical engineering, metal sectors, and the automotive industry, may need to be reevaluated to address the steep tariff burdens and maintain competitiveness.
- The negative economic sentiment towards Germany, as indicated by the ZEW Indicator of Economic Sentiment, negatively impacts the overall business environment and finance sectors, potentially leading to further challenges for employment policies and the overall recovery of the German economy.
