German Economic Sentiment Plunges After Trump's ‘Liberation Day’ Tariffs
ZEW Indicator of Economic Sentiment for Germany falls to lowest level since the Russian invasion of Ukraine in 2022
German and Euro Area economic sentiment plummeted to multi-year lows after US President Donald Trump’s “Liberation Day” speech.
The ZEW Indicator of Economic Sentiment for Germany dropped to minus 14.0 points, or 65.6 points below the previous month’s reading, the non-profit ZEW Institute said on Tuesday. That was the lowest level since the Russian invasion of Ukraine in 2022.
ZEW President Achim Wambach said the “erratic changes” in the US trade policy under Trump had weighed “heavily on expectations” in Europe’s largest economy.
“It is not only the consequences the announced reciprocal tariffs may have on global trade,” Wambach said. It is “also the dynamics of their changes that have massively increased global uncertainty,” he added.
Trump’s Policies Will Impact German Export-Intensive Sectors
Zew said Trump’s economic policy shift will likely impact German export-intensive sectors, such as the automobile and chemical industries. The policies could also affect the metal, steel, and mechanical engineering sectors.
Following Trump's April 2 speech, German conglomerate Siemens (OTCPK: SIEGY) dropped over 22%, touching €162.38 before reversing above €180. Defense industry firm Rheinmetall (OTCPK: RNMBF) saw a more significant drop, reaching a €933 low before reversing and making a new all-time high at €1497 today.
While Siemens has been a high-volatility stock (1.16 Beta), this market action is atypical for Rheinmetall, which is more stable than the broad market (0.46 Beta).
“For a minute, German investors believed they could shine with their country, providing billions of euros in defense and infrastructure spending,” Jeroen Blokland, founder of the Netherlands-based Blokland Smart Multi-Asset Fund, wrote on X.
“But the man on the other side of the Atlantic decided differently, causing a collapse in German investor sentiment.”
ING Lowers Economic Forecast For Germany
ING Think has forecasted that the German economy will stagnate in this year's second and third quarters, resulting in 0.5% GDP annual growth. It warned that economic forecasts are “highly uncertain” given that the trade situation “may swiftly change again.”
Germany’s planned expansionary budget may improve GDP growth in 2026, ING Think said today. “But due to a weaker carry-over effect, we have also reduced next year's growth forecast to 1.1% (down from 1.4%),” it said.
Germany's fiscal U-turn and the promise of increased defence spending across Europe had raised hopes for accelerated growth starting next year, ING Think said. This optimism was reflected in improved confidence indicators.
The announcement of blanket US import tariffs of 20% on the EU “drastically altered the mood,” it said.
Euro Area Economic Sentiment Plummets On Trump’s Tariffs
Following Germany, the economic sentiment in the Euro Area also plummeted, according to ZEW. The ZEW Indicator of Economic Sentiment for the Euro Area fell 58.3 points from the prior month to -18.5 in April 2025, the lowest since December 2022 and well below expectations of 14.2.
In April, about 41.1% of the surveyed analysts expected no changes in economic activity, 20.2% saw an improvement, and 38.7% anticipated a deterioration, according to Trading Economics. The indicator of the current economic situation decreased by 5.7 points to -50.9, and inflation expectations fell by 9.1 points to -3.1.
“The trade war is dashing hopes for a robust eurozone recovery,” ING Think said. Inflationary pressures are likely to ease in the second half, it added.
Slowing inflation will provide the European Central Bank (ECB) “ample opportunity” to implement three additional 25 basis point-rate cuts this year, ING said. On March 6, the ECB lowered its three key interest rates by 25 basis points.
Analysts forecast a further 25 basis points cut at the next meeting on April 17. This would bring the main refinancing rate down to 2.40%.
Trump Tariff Plans Weigh On US Consumer Sentiment
President Trump sent ripples through the global economy when he announced his reciprocal tariff strategy from the White House on April 2. On April 5, a 10% flat-rate tariff came into force on all goods imported into the US.
Four days later, a second phase of Trump's plan targeted roughly 60 countries described by the White House as “worst offenders” in trade practices. The US imposed country-specific tariffs on China (54%), Vietnam (46%), and the European Union (20%).
Though Trump has put a 90-day pause on all tariffs except those against China, the tariff policy has also impacted US consumer sentiment. The Federal Reserve Bank of New York’s March Survey of Consumer Expectations showed that short-term inflation expectations have risen.
The survey showed that median inflation expectations increased by 0.5 percentage points to 3.6% at the one-year-ahead horizon. At the same time, mean unemployment expectations rose 4.6 percentage points to 44%, hitting the highest level since April 2020.
US administration officials, though, downplayed the concerns about tariffs.
“They did everything they could to create a panic,” David Sacks, White House A.I. & Crypto Czar, wrote on his personal X account. “They were rooting for Trump to fail even if it meant the market and economy crashed. Trump has been vindicated. China is isolated, and the rest of the world is lining up to negotiate new trade deals.”