(Bloomberg) -- Investor confidence in Germany’s economy fell more than expected before next month’s snap election, underscoring persistent doubts in the country’s ability to escape its current bout of stagnation.
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The ZEW institute’s index of expectations dropped to 10.3 in January from 15.7 in December, more than economists had forecast. A measure of current conditions rose.
“A lack of private household spending and subdued demand in the construction sector continue to stall the German economy,” ZEW President Achim Wambach said Tuesday in a statement. “If these trends continue in the current year, Germany will fall further behind the other countries of the euro zone.”
Europe’s biggest economy contracted for a second straight year in 2024, with forecasts for 2025 only pointing to meager growth. The Bundesbank predicts just 0.2% expansion, a stark contrast to the more robust pace seen in other parts of the 20-nation euro zone.
The key issue is persistent weakness in the manufacturing sector, which is battling increased competition from China as well as domestic problems such as high energy costs and an aging workforce. The situation has become a dominant topic in the election campaign that will probably see Chancellor Olaf Scholz defeated by Friedrich Merz, who heads the conservative CDU/CSU bloc.
The latter is targeting 2% economic growth by cutting corporate taxes and bolstering middle-class incomes. Center-left parties are promising a fund to modernize Germany’s infrastructure despite the country’s strict limits on public borrowing.
Donald Trump’s return as US president is further clouding the outlook as his pledge to ramp up tariffs threatens to hit German exports in particular. The European Central Bank is, meanwhile, set to deliver a tailwind as it continues to lower interest rates.
--With assistance from Kristian Siedenburg and Joel Rinneby.
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