German Confidence Surges

Image © Thorsten Schier, Adobe Images

Economic expectations are improving considerably again in March.

There's a real German confidence boost underway as Europe's largest economy steps into a new paradigm, according to Germany's leading sentiment survey.

The ZEW Indicator of Economic Sentiment for Germany shows strong growth in expectations again in the March 2025 survey, reaching 51.6 points.

This puts it 25.6 points above the previous month's reading. The last time the indicator increased this substantially was in January 2023.

"The aggressive uptick reflects DAX gains, the index is up from than 2.5% over the last month, (note the S&P has lost more than 7% in the same period) and or presumptions of the passage of the major fiscal package," says Jeremy Stretch, an analyst at CIBC Capital Markets.

The boost in sentiment towards Germany is also reflected in an ongoing rally in the Euro, which reached its highest level since October against the Dollar and January against the Pound.

The confidence boost rests with plans by the country's centre-ground parties to alter the constitution to invest more in infrastructure and defence.

The debt brake has long contained German investment, which guarantees the country's finances remain sustainable.

However, the debt brake is countercyclical in nature, meaning it strangles growth when the economy is most in need of investment.

By changing the constitution, Germany will make approximately 1 trillion euros of additional spending possible in the next decade.

As the ZEW survey shows, businesses and investors understand the pro-growth implications.

"The brighter mood is likely due to positive signals regarding the future German fiscal policy, for example the agreement on the multi-billion-euro financial package for the federal budget," says Achim Wambach, President of ZEW.

"Prospects for metal and steel manufacturers as well as the mechanical engineering sector have improved. Last but not least, the sixth consecutive interest rate cut by the ECB means favourable financing conditions for private households and companies," he adds.