Economic expectations among analysts and institutional investors for Germany and the euro area strengthened markedly at the beginning of 2026, pointing to a possible shift in Europe’s economic trajectory this year. This is reflected in the latest survey conducted by the ZEW Center for European Economic Research, which shows a far stronger improvement than markets had anticipated.

According to the Munich-based institute, the ZEW indicator for economic expectations in Germany over the next six months surged in January to 59.6 points, up from 45.8 points in December 2025. This is the highest reading since July 2021 and well above forecasts, which had suggested a more modest rise to around 50 points. The sharp increase suggests growing confidence that the German economy may be approaching a recovery phase.

At the same time, assessments of the current economic situation in Germany remain deeply negative, although they also showed a noticeable improvement. The relevant index climbed by 8.3 points to minus 72.7 points, beating expectations for a weaker reading of around minus 75.5 points. This indicates that while present conditions are still challenging, perceptions are becoming slightly less pessimistic.

Commenting on the data, ZEW President Professor Achim Wambach said the strong rise in the indicator suggests that 2026 could represent a turning point. However, he stressed that positive sentiment alone is not enough and that continued efforts are needed to enhance Europe’s attractiveness as a business location in order to secure long-term and sustainable growth.

Despite the recent announcement of additional US tariffs, several export-oriented sectors in Germany have reported notable improvements in expectations. The balances for the steel and metallurgical industries rose by 18.2 points, while mechanical engineering advanced by 22.7 points. The automotive sector also improved, with its balance increasing by 16.5 points to minus 5.5 points. Further gains were recorded in the chemical and pharmaceutical industries, up 12.4 points, as well as in electrical engineering, which improved by 14.0 points.

These sectoral developments are consistent with Germany’s better-than-expected industrial production figures for November 2025, alongside a surprisingly strong rise in new orders. Together, they support the view that industrial momentum may be stabilizing after a prolonged period of weakness.

The outlook for export-heavy industries has also been supported by the European Union’s trade agreement with Mercosur, which is seen as a positive factor for future demand. At the same time, uncertainty surrounding US trade policy continues to act as a constraint on Germany’s export-driven economy, according to the ZEW survey findings.

A similar trend is visible at the eurozone level. Economic expectations for the currency bloc over the next six months improved significantly, with the ZEW index rising by 7.1 points in January to plus 40.8 points, the highest level since July 2024. The assessment of the current economic situation in the euro area also strengthened, increasing by 10.4 points to minus 18.1 points, signaling a gradual easing of negative sentiment across the region.