Euro Zone Signals Economic Recovery: Sentix Hits 3-Year High, German Industry Rebounds
The euro zone’s economic outlook brightened in July, with the Sentix Investor Confidence Index surging to 4.5 (up from 0.2 in the prior month)—a three-year peak and its third consecutive rise. The current conditions sub-index improved to -7.3 (still in contraction territory), while the expectations component jumped sharply to 17.0, reflecting growing optimism about recovery prospects. Germany’s index rose to -0.4, its highest level since February 2022, with its current conditions metric improving for the fifth straight month. Analysts caution that sustained economic warming could limit the European Central Bank’s scope for further rate cuts.
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German industrial output rebounded more strongly than expected in May, rising 1.2% month-on-month (forecasts had predicted no change). This was driven by robust gains in the auto sector (+4.9%), energy sector (+10.8%), and pharmaceuticals (+10%). Three-month rolling output growth reached 1.4%, signaling a potential bottoming-out. ING noted "growing signs of a cyclical rebound," while Commerzbank projected that "momentum will continue into the second half of the year."
Risks and challenges persist: Short-term pressures include drought-related disruptions to inland waterway shipping, a stronger euro undermining export competitiveness, and fading pre-U.S. tariff stockpiling effects amid ongoing trade tensions. Demand remains weak—May industrial orders fell 1.4% month-on-month, and sluggish euro zone domestic demand is constraining recovery strength. The impact of policy measures, such as government tax relief, will take time to materialize. A key contradiction emerges between manufacturing recovery and soft domestic demand: Capital Economics highlighted stronger-than-expected industrial resilience, but Hamburg Commercial Bank warned that output "remains significantly below early post-pandemic levels."
