Germany: Merkel’s Package Boosts Investment Expectations After Three Years of Recession

The investment and growth expectations index from the ZEW Institute for Germany rose to 51.6 in March from 26 the previous month. This marks the highest measurement since February 2022, surpassing the median estimate of analysts surveyed by Bloomberg, which stood at 48.3. The current conditions gauge also increased but less than expected. ZEW President Achim Wambach stated that “the improved sentiment is likely due to positive signals regarding future German fiscal policy.” Furthermore, “the European Central Bank’s sixth consecutive interest rate cut means favorable financing conditions for households and businesses.” These figures were released just before a crucial parliamentary vote on a debt-financed spending package signaling a shift away from Germany’s traditional fiscal discipline. Analysts believe these measures will help Europe’s largest economy escape its prolonged slump, though results may not be evident until next year. In 2024, Germany’s GDP contracted for the second consecutive year, with prospects for 2025 remaining bleak. On Monday, the IMF revised its growth forecast down to 0.4% from 0.7%. For 2026, it expects 1.1%. The country continues to struggle with weak global demand, the disruption of Russian energy supplies, overregulation, and a shortage of skilled workers. Trade threats from U.S. President Donald Trump pose additional risks; he announced over the weekend plans to impose both broad reciprocal tariffs and additional sector-specific duties starting April 2. Bundesbank President Joachim Nagel reiterated last week that Germany is particularly vulnerable to American protectionism and new tariffs. He warned that production could contract again this year, a sequence not seen this century.