German ZEW Sentiment Rebounds As Investors Hope For End Of Conflict
Frankfurt vista
- ZEW expectations index rebounds from April’s three-year low - Current conditions worsen as energy costs and inflation bite - Defence demand and stockpiling behind factory order strength - ECB officials increasingly back June rate hike amid inflation risks
The latest ZEW Indicator of Economic Sentiment pointed to renewed optimism following two consecutive monthly declines.
Germany’s ZEW think tank said on Tuesday that, although sentiment remained in negative territory, its expectations indicator for the next six months improved to -10.2 in May from April’s three-year low of -17.4.
Acknowledging the still-downbeat mood, ZEW President Professor Achim Wambach said expectations were improving, with financial market experts hopeful that the war in Iran would end soon.
Meanwhile, the institute’s current conditions indicator for Germany deteriorated by 4.1 points to -77.8, although the reading was slightly better than the -78.0 expected. “Weak industrial production, rising energy prices and an inflation rate that exceeds the two-percent mark continue to burden the German economy,” Wambach added.
Looking for positives
Analysts at Bank of America noted that recent hard data had delivered some more encouraging surprises for the German economy. “Factory orders were up 5% m/m in March. Such surprises have become more frequent since defence spending was ramped up. Our proxy for defence-exposed sectors shows more than 10% m/m growth in March,” its Global Research team wrote.
The bank added that the “rest” of the economy, including energy-intensive sectors, expanded 3.7% over the same period. “That’s good news, but only maintains near-zero momentum. We doubt this is a nascent recovery. Rather, we suspect it may reflect precautionary stockpiling. But it should show up in industrial production and thereby at least help explain the 0.3% q/q Q1 GDP print.”
ECB set to act
In an effort to curb second-round effects from elevated oil prices and the resulting knock-on impact on Eurozone inflation amid the ongoing Middle East crisis, the European Central Bank is widely expected to raise interest rates by 25 basis points at its 10–11 June meeting.
Recent comments from several key Governing Council members appear to support that view.
On 7 May, ECB Executive Board member Isabel Schnabel said the ECB may need to tighten policy if the energy shock stemming from the Iran conflict broadens into wider inflationary pressures. She also warned of intensifying “second-round effects”, adding that household inflation expectations had adjusted more rapidly.
A day earlier, fellow Executive Board member Piero Cipollone said the probability of an ECB rate hike had increased as the economy drifted away from the ECB’s March baseline projections. He also warned about inflation expectations following the recent rise in CPI inflation to 3% and concerns over a return to the price dynamics seen in 2022.
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- ZEW expectations index rebounds from April’s three-year low
- Current conditions worsen as energy costs and inflation bite
- Defence demand and stockpiling behind factory order strength
- ECB officials increasingly back June rate hike amid inflation risks
By Harry Daniels
LiveSquawk News
@HarryDaniels71
13:00 GMT | 12 May 2026
The latest ZEW Indicator of Economic Sentiment pointed to renewed optimism following two consecutive monthly declines.
Germany’s ZEW think tank said on Tuesday that, although sentiment remained in negative territory, its expectations indicator for the next six months improved to -10.2 in May from April’s three-year low of -17.4.
Acknowledging the still-downbeat mood, ZEW President Professor Achim Wambach said expectations were improving, with financial market experts hopeful that the war in Iran would end soon.
Meanwhile, the institute’s current conditions indicator for Germany deteriorated by 4.1 points to -77.8, although the reading was slightly better than the -78.0 expected. “Weak industrial production, rising energy prices and an inflation rate that exceeds the two-percent mark continue to burden the German economy,” Wambach added.
Analysts at Bank of America noted that recent hard data had delivered some more encouraging surprises for the German economy. “Factory orders were up 5% m/m in March. Such surprises have become more frequent since defence spending was ramped up. Our proxy for defence-exposed sectors shows more than 10% m/m growth in March,” its Global Research team wrote.
The bank added that the “rest” of the economy, including energy-intensive sectors, expanded 3.7% over the same period. “That’s good news, but only maintains near-zero momentum. We doubt this is a nascent recovery. Rather, we suspect it may reflect precautionary stockpiling. But it should show up in industrial production and thereby at least help explain the 0.3% q/q Q1 GDP print.”
In an effort to curb second-round effects from elevated oil prices and the resulting knock-on impact on Eurozone inflation amid the ongoing Middle East crisis, the European Central Bank is widely expected to raise interest rates by 25 basis points at its 10–11 June meeting.
Recent comments from several key Governing Council members appear to support that view.
On 7 May, ECB Executive Board member Isabel Schnabel said the ECB may need to tighten policy if the energy shock stemming from the Iran conflict broadens into wider inflationary pressures. She also warned of intensifying “second-round effects”, adding that household inflation expectations had adjusted more rapidly.
A day earlier, fellow Executive Board member Piero Cipollone said the probability of an ECB rate hike had increased as the economy drifted away from the ECB’s March baseline projections. He also warned about inflation expectations following the recent rise in CPI inflation to 3% and concerns over a return to the price dynamics seen in 2022.