Trade Tensions Cast Shadow Over German Financial Outlook

New trade policies proposed by former U.S. President Donald Trump are considerably impacting the german economic outlook. A recent survey of 216 Chief Financial Officers (CFOs) from German companies, conducted by Deloitte, reveals a sharp decline in economic sentiment following the proclamation of these policies.

CFO Confidence Takes a Nosedive

The Deloitte survey, which serves as a key indicator of financial expectations, experienced a dramatic 29-point drop. Before the announcement of Trump’s trade measures, optimists slightly outnumbered pessimists by 4 percentage points. However, post-announcement, pessimists now outweigh optimists by a ample 25 percentage points, signaling a significant shift in economic confidence.

The customs announcements meet the German economy in a difficult phase after two years of recession.
Alexander Börsch, Deloitte

This downturn arrives at a particularly vulnerable time for Germany, which has been grappling with economic stagnation for the past two years. The initial part of the survey had indicated a cautious optimism, a welcome change from the pessimism observed in the autumn of the previous year. However, this nascent recovery now appears threatened.

Investment Appetite Remains Resilient

Despite the overall decline in sentiment, there’s a silver lining: the willingness to invest has actually increased. This positive trend was observed even before April 2nd and saw further gains afterward. this suggests that German companies are looking to adapt and strengthen their positions in the face of potential trade disruptions.

The increase in willingness to invest, which still lasts among the companies surveyed after April 2, also gives reason for some confidence. This growth should not least be related to investments in resilience and the reorganization of the value chains.
Alexander Börsch, Deloitte

This increased investment may be driven by a need to bolster resilience and restructure supply chains to mitigate the impact of the new trade policies. Companies are likely exploring strategies to diversify their markets and reduce reliance on specific trade partners.

For example,many German manufacturers are now investing heavily in automation and digitalization to improve efficiency and reduce labor costs,making them more competitive in a challenging global market. According to a recent report by the German Engineering Federation (VDMA), investments in automation technologies have increased by 15% in the last year alone.

Survey Methodology

The Deloitte survey was conducted between March 20th and April 10th. Of the 216 CFOs surveyed, 135 were interviewed before the announcement of the new trade policies on April 2nd, while 81 were interviewed afterward. This split allows for a clear comparison of sentiment before and after the policy announcement.