Dissatisfied with the performance of the federal administration at present - Dissatisfaction prevails among economic sectors towards the Federal Government's performance
The economic outlook for Germany, as reflected in the ZEW Economic Sentiment Index, has shown a recovery in July 2025, reaching its highest since February 2022. This optimism is attributed to fiscal measures by the government and ECB rate cuts that may end years of stagnation. However, this sentiment took a sharp downturn in August, largely due to poor Q2 economic performance and disappointment over the new EU-US trade deal.
The recovery, while promising, has not been universal. Key industries such as chemical, pharmaceutical, mechanical engineering, metal, and automotive have expressed particular concerns about the EU-US trade agreement's asymmetrical impact and tariff burdens, which weigh on their outlooks negatively.
Consumer confidence, while somewhat positive, is likely cautious amid economic volatility and trade tensions. The improved consumer demand noted in July suggests some latent consumer confidence tied to government fiscal stimulus, but the overall economic slowdown and downward revision of growth prospects likely temper this confidence.
The German federal government has implemented front-loaded fiscal spending increases in areas including housing, digitalization, education, and childcare. Economists see these as meaningful stimuli supporting moderate growth for 2025 and 2026, despite an expected long-term rise in budget deficits to 3-4% of GDP (above earlier projections).
However, not all sectors are pleased with the government's economic policy. The energy industry has much criticism of Economics Minister Katherina Reiche (CDU). Environmental and climate advocates express disappointment, stating that the chancellor counts the climate goals, the energy minister relies on climate-damaging gas, wants to brake renewables, the finance minister reduces spending on climate protection, and increases fossil fuel subsidies. The energy transition is particularly hard hit by the change of government.
Agriculture Minister Alois Rainer is praised by representatives of forestry and agriculture for efforts to reduce regulations and environmental requirements, but criticized by consumer organization Foodwatch for not improving consumer welfare or livestock conditions. Barbara Heidebroek, President of the Federal Association of Wind Energy, criticizes Reiche for not driving forward the expansion of renewables.
Criticism was also directed at pension policy and the lack of structural reforms. Thilo Brodtmann, CEO of the Mechanical Engineering Industry Association VDMA, states that the post-election momentum was good but it's becoming increasingly less noticeable now and there's a need for real reforms and uncomfortable decisions. The German Real Estate Association criticizes the extension of the rent brake, stating that construction activity remains low. The SME association sees signs of wear, stating that the initial dynamism is at risk of waning. The German Confederation of Skilled Crafts (ZDH) shares this view and finds the government's balance sheet "disappointing".
In a survey conducted by the Ifo Institute together with the "Frankfurter Allgemeine Zeitung" between July 29 and August 5, 42% of economists surveyed were critical of the economic policy of the federal government.
In conclusion, the current sentiment of economists towards the German federal government's economic policy is mixed but leaning cautiously optimistic with concerns. Fiscal and monetary policy measures are helpful but insufficient alone to overcome deep-rooted economic challenges and external pressures.
- The Commission's proposal for a directive on the labelling of foodstuffs, which could potentially affect personal-finance and business, is yet to be adopted, a concern for policy-and-legislation and politics enthusiasts following general-news.
- Investing in the German economy, given the current economic outlook and trade tensions, might require a cautious approach, as suggested by the volatility in the ZEW Economic Sentiment Index.
- Despite the government's efforts in spending increases in areas like housing, digitalization, education, and childcare, some sectors, like the energy industry and SME association, are expressing dissatisfaction with the economic policy that's seen as lacking in structural reforms.
- The mixed sentiment towards the German federal government's economic policy among economists suggests a need for more comprehensive and long-term strategies to address deep-rooted economic challenges and financial concerns, not just short-term fiscal and monetary measures.
