German business is confident about Merz debt bazooka; consumers, not so much

German business has high hopes for incoming Chancellor Friedrich Merz and his plan to unleash government spending on defense and infrastructure. Loosening the historically borrowing-averse nation's "debt brake" to enable massive government bond issuance is seen as reviving the eurozone's largest economy after years of stagnation.

Germany's consumers, however, are not yet convinced.

Our heat map tracks seven different confidence indicators for Germany. The six that assess business confidence perked up in March following Merz's election win in February. (In mid-March, both chambers of the German parliament approved the constitutional amendment required to loosen the debt brake; more optimism can thus be expected as April readings come in.)

The ZEW think-tank's index for economic expectations surged to a three-year high of 51.6 in March, up from 26 in the previous month. This measure is based on a survey of financial-market professionals. The other best-known German confidence benchmark - the IFO index, which tracks business sentiment - also improved, but more modestly.

The purchasing managers' index (PMI) for manufacturing increased for the third month in a row in March, though it remained in contraction territory (i.e., below 50). The "future output" component of the PMI, on the other hand, turned positive back in November, and reached 57.8 in March - a three-year high.

Meanwhile, the consumer climate index published by GfK actually decreased in March. (It inched back up slightly in April.) Sticky price increases could be restraining the historically inflation-averse German consumer's optimism.

Equity investors, by contrast, appear to be jubilant - according to real-time fund flows tracked by our partners at EPFR (like CEIC, an ISI Markets company).

Net flows into German stocks increased steeply from February, reaching USD 11.5 billion at the end of March. That more than offset the outflows seen in all of 2024. It was mostly funds domiciled in Germany, the US, and Luxembourg and Ireland (jurisdictions home to many pan-European funds) driving this surge. Bond fund flows into Germany in 2025 so far have been less volatile, but following the same positive pattern as in 2024.