German Investor Sentiment Dips in February, Yet Recovery Remains Possible

German Economic Sentiment Overview

By Maria Martinez

Current Economic Situation

BERLIN, Feb 17 (Reuters) - German investor morale fell unexpectedly in February from January's five-year high, but continued to point to a modest recovery in Europe's biggest economy that is still struggling to gain traction.

Government Spending Impact

The economic sentiment indicator fell to 58.3 points in February, the ZEW economic research institute said on Tuesday, while analysts polled by Reuters had expected the reading to rise to 65.0, from last month's 59.6.  

Sector-Specific Developments

Despite a 1.3-point drop from January, the survey’s results still suggest that respondents remain optimistic about the outlook over the next six months, said Ankita Amajuri, an economist at Pantheon Macroeconomics.   

Last year, Germany's GDP expanded for the first time in three years as consumers and a government spending surge started to fuel a sluggish recovery. 

Germany's economy is expected to grow by 1% this year, the Chamber of Industry and Commerce said on Tuesday.

HIGH HOPES ON GOVERNMENT SPENDING

While economic expectations worsened, the assessment of the current economic situation continued to improve, rising to a seven-month high of minus 65.9 from minus 72.7.

"The German economy has entered a phase of recovery, albeit a fragile one," said ZEW President Achim Wambach, pointing to still considerable structural challenges, especially for industry and private investment.

Export-oriented sectors showed moderate to strong improvements in February, with prospects particularly improving for the chemical and pharmaceutical industries, steel and metal production and mechanical engineering, reflecting better than expected incoming orders at the end of 2025. 

Economic hopes will remain high due to planned additional government spending, said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe.

Germany's government approved a surge in public spending targeting defence and infrastructure last year, but it is taking time to feed into the economy.

  "Expectations alone do not make an economy; it is the translation into production that matters," Krueger said.

The economic recovery also appears to be proceeding unevenly, said Ulrich Wortberg, senior economist at Helaba.

Banks and insurance, as well as the information technology industry are experiencing negative developments, the ZEW survey showed.

(Additional reporting by Reinhard Wecker, Writing by Ludwig Burger and Maria Martinez, Editing by Thomas Seythal, Linda Pasquini and Andrei Khalip)