Economic Stagnation Amid Trade Tensions

Germany's economy faces significant challenges as it navigates ongoing trade disputes. The Bundesbank forecasts stagnation in the second quarter, largely due to heightened tariffs imposed by the USA, which further strain German exporters already grappling with weak global demand.

Despite these hurdles, domestic sentiment showed signs of improvement in May, with the Ifo business climate index reaching its highest level since June 2024. The mechanical engineering sector interprets recent export figures as a potential stabilization signal.

However, concerns persist about the long-term outlook, with experts predicting zero growth this year and calling for increased investments and structural reforms. In contrast, the US experiences a slight uptick in business activity, though rising inflation and trade tensions with China pose ongoing risks.

While Wall Street reacts positively to favorable economic data, the specter of stagflation looms, suggesting that underlying economic challenges may persist despite short-term gains.