German investor confidence grows

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CHART 1 • German investor confidence grows

German investors are betting on a recovery that hasn't arrived yet. The ZEW expectations index surged to 52.7 in July from 47.5 in June, smashing analyst forecasts of 50.3 and marking the highest reading since early 2023. This dramatic swing in sentiment comes despite the current situation index remaining deeply negative at -59.5, though that's improved from -72 in June.

The disconnect between hope and reality has rarely been starker. Nearly two-thirds of experts expect the German economy to improve, even as it remains mired in industrial recession. The optimism surge reflects resilience in the face of US tariff threats as the government in Berlin ramps up spending.

After the strong improvements of the past two months, the positive sentiment among respondents is becoming more firmly established. But here's the rub: expectations have soared before, only to crash back to earth when reality bites. The gap between the expectations index at +52.7 and the current situation at -59.5 represents a 112-point chasm between dreams and delivery. History suggests such extreme divergences rarely end well: either the economy catches up to expectations, or sentiment crashes back to match reality. Place your bets.

Source: Bloomberg

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