German economic sentiment rebounds in May as tariff fears ease
Germany's economic sentiment staged a strong rebound in May, recovering from its lowest levels in over two years, as easing trade tensions and political stability lifted the business outlook.
According to the latest ZEW Economic Sentiment survey, the indicator rose to 25.2 points, up from minus 14 in April which was the weakest reading since July 2023.
The recovery far outpaced analysts' expectations of 11.9, reflecting renewed confidence across key sectors.
"Expectations are brightening," ZEW President, Professor Achim Wambach, PhD, said, noting that the formation of the new federal government, the progress in the tariff disputes, and a stabilising inflation rate are contributing to the increased optimism.
The eurozone saw a similarly strong recovery, with sentiment climbing to 11.6 points in May from minus 18.5 in April, well above expectations of minus 3.5. The current economic assessment for the monetary union also improved, rising 8.5 points to minus 42.4. Despite this upbeat forward-looking sentiment, Germany's current economic conditions remain grim, with the corresponding index dipping a further 0.8 points to minus 82.0 — among the lowest levels in recent years.
The ZEW survey highlighted growing optimism for the next six months, citing improvements in banking, automotive, chemical, metal, machinery and steel industries.
Stabilising inflation, a more predictable trade environment, and hopes for further interest rate cuts by the European Central Bank are fuelling expectations of a broader recovery.
A rebound in domestic demand and a revival in the construction sector are also anticipated, offering a more balanced growth outlook after months of stagnation.
German stocks showed only modest gains on Tuesday, as the DAX index rose 0.2% to 23,600. A day earlier, the leading German stock market index opened at over 23,900 points, setting new record highs, buoyed by optimism over a US-China trade truce.
Among top movers, Bayer rose 8.5% after beating earnings expectations for the first quarter. The German pharmaceutical giant posted a 7.4% decline in adjusted EBITDA to €4.09 billion, but the figure surpassed analyst forecasts thanks to strong demand for new prescription drugs, which helped offset weakness in its crop science division. The company confirmed its full-year outlook and continued with a cost-cutting programme that included 2,000 job reductions in the first three months of the year.
Shares of major German automakers also advanced. Volkswagen gained 1.8%, while BMW, Porsche and Mercedes-Benz were each up by about 1%, supported by improving export prospects.
Losses were led by Germany's two largest reinsurers. Munich Re fell% and Hannover Rueck dropped 2.8%, after reporting hits to their first-quarter profits due to claims linked to wildfires in Los Angeles.
Vonovia declined 3.5% after announcing the issuance of €1.3 billion in convertible bonds.
Fraport, the operator of Frankfurt Airport, saw its shares fall 1.8% after reporting a sharper-than-expected 16.5 percent drop in first-quarter EBITDA to €177.5 million. The company cited rising personnel and regulatory costs in Germany as key headwinds. While full-year guidance was maintained, the weak margin performance weighed on investor sentiment.
German pharmaceutical giant Bayer's shares jumped 10.5% on the London Stock Exchange on Tuesday morning following the company experiencing higher demand for its new cancer and kidney drugs in the first quarter of 2025.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) before special items was €4.1 billion for the first quarter of 2025. Although this was a 7.4% fall from the corresponding quarter a year ago, it was still above market expectations of €3.9bn, according to Bloomberg.
Group sales for the first quarter was €13.7bn, which was a fall of -0.1% compared to the same quarter in 2024. Core earnings per share plunged 11.7% to €2.5.
Bill Anderson, Bayer's chief executive officer (CEO) was optimistic that the earnings jump in the pharmaceuticals division was a sign that teams were learning to do more with less. He also reiterated his confidence in the fundamentals of the company and the momentum of its launches.
The company also revealed that it is closely monitoring ongoing economic and geopolitical changes, as well as their impact on the company.
Bayer confirmed its full-year 2025 outlook at constant currencies and expects that the pharmaceutical division will deliver at the higher end of the previously shared sales and profitability guidance range.
Bayer's pharmaceuticals division's sales grew 4.4% in the first quarter of 2025, mainly boosted by North American sales, although the Europe, Middle East and Africa (EMEA) region lagged.
The company's new hormone therapy drug for prostate cancer, Nubeqa, has seen considerable demand, along with Kerendia, used to treat chronic kidney disease.
Eylea, mainly used to treat various eye conditions, has also seen sales increase, while Bayer's radiology business has been strong too. Similarly, contraceptive drugs such as YAZ and Mirena have recorded robust growth as well. However, the anticoagulant Xarelto has seen a decline mainly because of patent expirations.
On the other hand, sales for Bayer's crop-science branch dropped 4.1% in the first quarter of the year, partly because of slowing pesticide demand. Ongoing low prices for glyphosate, which is the active ingredient in the Roundup weedkiller, has also contributed to lower crop-science performance.
The company has previously shared that it could potentially stop producing glyphosate in Louisiana as Chinese competition intensifies.
Bayer is also continuing to deal with significant litigation related to products that the company inherited in its Monsanto acquisition back in 2018.
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