German Investor Sentiment Drops Sharply in August on Trade Frustrations

German investor confidence weakened more than expected in August, as concerns over trade tensions and a slowing domestic economy weighed on sentiment. The ZEW economic sentiment index fell to 34.7 from July’s 52.7, significantly below the consensus forecast of 39.8.

The decline comes after the European Union and the United States finalized a trade agreement that includes a 15% U.S. import tariff on most EU goods—a move that has unsettled export-driven sectors in Germany. Analysts noted that the recent deal could pressure German manufacturing, particularly in the automotive and industrial machinery industries, which rely heavily on U.S. demand.

Adding to the cautious mood, official data showed Germany’s economy contracted by 0.1% in the second quarter of 2025. Economists attributed the drop to reduced U.S. orders following a stockpiling surge earlier in the year, ahead of the new tariff implementation.

The ZEW index measuring current conditions also deteriorated, falling to –68.6 from –59.5 in July, underscoring persistent challenges for Europe’s largest economy. Economists warn that without a rebound in global demand or domestic investment, business sentiment could remain under pressure in the coming months.