Germany's economic mood cooled sharply in August 2025, with the economic sentiment indicator plunging to 34.7, down 18 points from July. This marks a break in the months-long upward trend, reflecting growing unease among financial market experts. The current situation assessment slid further into negative territory at minus 68.6, driven by weak second quarter performance and sector-specific pressures.

The recently announced EUUS trade deal, instead of boosting confidence, sparked disappointment. Concerns centre on its limited benefits for key German industries, particularly chemicals, pharmaceuticals, mechanical engineering, metals, and automotive, already grappling with subdued demand.

The broader eurozone outlook mirrored Germany's downturn. Economic sentiment fell to 25.1, a drop of 11 points, with the current situation index declining to minus 31.2. Downward revisions to growth expectations underscore that the slowdown is not confined to Germany but extends across the monetary union.

In essence, August's results reveal a fragile recovery overshadowed by trade deal scepticism, persistent industrial headwinds, and a softening eurozone outlook, painting a picture of cautious optimism giving way to renewed concern. The latest update takes the RPI to minus 3 and the RPI-P to minus 14, meaning that economic activities adjusted for prices are now running behind the expectations of the German economy.

After a nice rebound through July, sentiment is expected to retreat to 40 in August from 52.7 in July. Current conditions are expected down to minus 63.0 from minus 59.5.

The Mannheim-based Centre for European Economic Research (ZEW), asks German financial experts every month for their opinions on current economic conditions and the economic outlook for Germany (as well as other major industrial economies). The responses are synthesised into two simple indices that provide a snapshot of how the economy is seen to be performing.

The ZEW Indicator of Economic Sentiment is calculated from the results of the ZEW Financial Market Survey. The ZEW is followed closely as a precursor and predictor of the Ifo Sentiment Survey and as such is followed closely by market participants. The data are available around mid-month for the current month. The survey provides a measure of analysts' view of current economic conditions as well as a gauge of expectations about the coming six months. The latter measure tends to have the larger market impact and reflects the difference between the share of analysts that are optimistic and the share of analysts that are pessimistic. About 350 financial experts take part in the survey.