Germany’s economic sentiment hit a 2-year high, but the eurozone’s trade surplus fell sharply. EU exports to the US surged as firms frontloaded shipments ahead of potential Trump tariffs, while the trade deficit with China widened sharply.
Economic data released on Tuesday presented a mixed picture for the eurozone, with a sharp rise in Germany’s economic sentiment countered by a weaker-than-expected trade surplus for the region.
Notably, the latest trade data suggested that European and US businesses are accelerating shipments ahead of potential Trump-imposed tariff hikes, as reflected in the sharp increase in transatlantic trade volumes.
Germany’s ZEW economic sentiment index soared to 51.6 points in March 2025, up from 26 points in January and well above market expectations of 48.1. This marks the highest level of economic optimism since January 2023.
“Economic expectations are improving considerably again in March, with a strongly increasing ZEW Indicator of Economic Sentiment,” said ZEW President Achim Wambach.
“The brighter mood is likely due to positive signals regarding future German fiscal policy, including the agreement on the multi-billion-euro financial package for the federal budget. In particular, prospects for metal and steel manufacturers, as well as the mechanical engineering sector, have improved. Last but not least, the European Central Bank’s sixth consecutive interest rate cut means favourable financing conditions for private households and companies.”
The broader eurozone ZEW economic sentiment index also rose, climbing 15.6 points to 39.8, hitting its highest level in eight months.
Earlier this month, Germany committed to a significant fiscal expansion, aiming to boost defence capabilities and revitalise its economy.
This marks a departure from the country’s traditional fiscal conservatism. The initiative includes a €500 billion infrastructure fund over 12 years, with €100bn allocated to climate and economic transformation projects.
Germany also intends to ease its constitutionally mandated debt brake to enable higher borrowing, particularly for defence expenditures. These measures are expected to be approved by the Bundestag this week.
Eurozone trade surplus shrinks, US exports jump
The eurozone’s trade surplus in goods shrank drastically to just €1bn in January 2025, down from €10.6bn a year earlier, according to Eurostat data.
The figure also marked a sharp decline from December’s €15.4bn surplus.
The downturn was driven by a weaker performance in machinery, vehicles, and other manufactured goods.
The surplus in machinery and vehicles fell from €16.5bn in December to €7.4bn in January, while other manufactured goods shifted from a €1.2bn surplus to a €4.6bn deficit.
A similar trend was observed across the broader European Union, which moved from a €15.9bn trade surplus in December 2024 to a €5.4bn deficit in January 2025.
EU trade with US jumps ahead of looming tariffs
One bright spot in the trade data was a sharp increase in European exports to the United States.
The EU exported €46.7bn worth of goods to the US in January, marking a 16% year-on-year increase. Imports from the US also rose by 7.5% to €30.5bn.
The surge in trade activity may be linked to businesses seeking to frontload shipments ahead of proposed US tariff hikes.
Donald Trump’s administration has announced plans to impose reciprocal tariffs on all major trading partners from 2 April 2025.
Trump has also specifically threatened to impose a 200% tariff on European wines and other alcoholic beverages, unless the EU removes its existing 50% tariff on American whiskey.
EU’s trade deficit with China widens
While trade with the US showed strength, the EU’s trade relationship with China continued to deteriorate. Imports from China surged by 19.2% year-on-year to €44.8bn, while exports to the country fell by 13.3% to €14.bn.
The growing trade imbalance with China raises concerns about the EU’s dependence on Chinese goods and the competitiveness of European exports in the region.
