Germany’s business climate is showing tentative signs of improvement as the EU and U.S. inch closer to resolving their trade tensions. With the Ifo business expectations index rising to 90.7 in July 2025—the highest since April 2023—investors are recalibrating their focus on the country’s manufacturing and infrastructure sectors. The looming threat of a 30% U.S. tariff on EU imports has spurred urgency in negotiations, with a potential 15% baseline tariff agreement offering a path to de-escalation. While this rate remains higher than the 10% secured by the UK, it represents a compromise that could stabilize export-dependent industries and unlock new investment opportunities.

Tariff Resolution and Sectoral Relief

The automotive sector, a cornerstone of Germany’s economy, faces a pivotal moment. A 15% tariff on EU imports would reduce the current 27.5% rate on German cars in the U.S., though it remains significantly higher than the 2.75% duty under pre-Trump policies. This adjustment, while imperfect, mitigates the risk of a full-scale trade war and provides clarity for automakers like Volkswagen and BMW. For investors, this stability reduces uncertainty and supports long-term planning.

The EU’s retaliatory measures—ranging from €93 billion in potential tariffs on U.S. goods to the deployment of the Anti-Coercion Instrument—add complexity. However, the mere threat of these tools has softened U.S. demands, creating a more balanced negotiation table. If a deal materializes, German manufacturers could see a near-term boost in export volumes and capital reinvestment.

Government-Led Growth Initiatives

Chancellor Friedrich Merz’s administration has amplified this momentum through bold infrastructure and manufacturing investments. The €500 billion Infrastructure Special Budget (ISB) is a cornerstone of this strategy, targeting climate-neutral energy, high-speed rail, and hydrogen networks. By 2030, the government plans to connect industrial hubs to a hydrogen core network and expand renewable energy capacity by 20 GW annually. These projects are not just about sustainability—they’re about securing Germany’s position as a global industrial leader.

The “Made for Germany” initiative, backed by 61 major firms and €631 billion in pledged investments, underscores this ambition. Companies like Siemens (SIE.DE) and Deutsche Bank (DBKGn.DE) are prioritizing R&D, digitization, and green technologies. For example, Siemens’ €15 billion investment in hydrogen electrolysis systems aligns with the government’s goal to become a net-zero industrial hub by 2045.

Strategic Investment Opportunities

The convergence of tariff resolution prospects and government-led initiatives creates a compelling case for strategic equity investments in three areas:

Industrial Automation and Green Energy

German manufacturers are pivoting toward energy-efficient processes and hydrogen-based production. Companies like ABB (ABBN.SW) and Linde (LIN.DE), which supply automation and industrial gas solutions, are well-positioned to benefit. The EU’s transposition of the Net-Zero Industry Act will further streamline permitting for renewable projects, accelerating returns on infrastructure investments. Infrastructure Modernization

Deutsche Bahn’s €150 billion rail upgrade plan, funded by the ISB, represents a decade-long tailwind for construction and engineering firms. Rostock-based Hochtief (HEIA.F) and Siemens Mobility (SIE3.F) are already securing contracts to modernize rail corridors and integrate smart grid technologies. Defense and Advanced Manufacturing

With geopolitical tensions persisting, the German government’s €150 billion defense budget (2025–2029) is driving demand for advanced manufacturing. Rheinmetall (RHM.DE) and Leonardo (LDO.MI) are expanding production of armored vehicles and radar systems, supported by streamlined permitting under the revised AnlV reforms.

Risk Mitigation and Long-Term Outlook

While the EU’s retaliatory tools provide leverage in trade negotiations, investors must remain cautious. A failed deal could trigger a 30% U.S. tariff, disproportionately affecting German automakers and machinery exporters. However, the EU’s readiness to deploy the Anti-Coercion Instrument—targeting U.S. digital services like Amazon and Microsoft—adds a layer of deterrence.

For those with a medium-term horizon, the current environment favors a diversified approach. Allocating to equities in renewable energy, infrastructure, and defense—sectors directly tied to government spending—offers resilience against trade volatility. Additionally, the Ifo’s revised 0.3% growth forecast for 2025, while modest, reflects a stabilization that could attract foreign capital.

Conclusion

Germany’s strategic investments in manufacturing and infrastructure, coupled with the EU’s diplomatic maneuvering in trade talks, present a unique window for investors. While the path to a comprehensive EU-U.S. deal remains uncertain, the government’s commitment to structural reforms and green innovation provides a sturdy foundation. For equity investors, the key lies in identifying companies poised to capitalize on both near-term policy tailwinds and long-term industrial transformation. As the Ifo data suggests, the German economy is no longer shrinking—it’s recalibrating for a new era of strategic growth.

(July 25): Volkswagen AG said it expects US tariffs to come down to a more manageable level, bolstering the export-reliant automaker after it tallied up €1.3 billion (RM6.44 billion) in expenses in the first half (1H) due to President Donald Trump’s trade war.

The shares gained as much as 4.1% after chief executive officer Oliver Blume said he expected European Union and US negotiators to eventually agree on duties of around 15%, from the 27.5% the car industry faces currently. The German manufacturer is also pursuing a separate offset with the Trump administration in return for raising its spending in the country.

“We can offer huge investments, and then have the opportunity to discount the tariff level, but also with the potential to export from the US to the rest of the world,” Blume said during an earnings call.

Any reprieve from Trump’s trade war, which is weighing on profits and reordering supply chains, would be welcome news for the industry. Volkswagen on Friday cut its full-year outlook after the levies hit its Porsche and Audi brands. Just last week, Stellantis NV announced a surprise €2.3 billion 1H net loss after scrapping investments and tallying the impact of mounting trade tensions. Optimism around tariffs also contributed to share gains for Mercedes-Benz Group AG, BMW AG and Stellantis.

Volkswagen is building a factory in the US to make Scout-branded rugged SUVs and pickup trucks, and is weighing to set up local production for Audi. It may also export more vehicles from its factory in Chattanooga, Tennessee, where it currently makes SUVs mostly for the North American market. Blume said US negotiators reacted positively to the company’s proposal to reduce the tariff burden by US$1 (RM4.21) for every US$1 invested in the country.

Analysts also cited progress Volkswagen is making on restructuring its costly German operations and slowing a sales slump in China, where local carmakers led by BYD Co are dominating on electric vehicles (EVs).

“Some of the worst problems have been addressed,” Citi analyst Harald Hendrikse said in a note. The namesake VW brand “is starting to benefit from its significant restructuring and capacity cuts, and we think Audi and Porsche will also start to recover” by next year.

The maker of the VW Golf earlier on Friday lowered its operating return on sales outlook to as low as 4%, from at least 5.5% previously, and pared back expectations for revenue and free cash flow. The lower end of that forecast assumes the 27.5% US tariffs will stick in the second half, while the upper end foresees the levies being cut to 10%. Audi and Porsche don’t operate factories in the US and import all of the cars they sell there.

“We need a good compromise” on tariffs, chief financial officer Arno Antlitz said in an interview with Bloomberg Television. “A solution that fits both the needs of the American administration, but also European automakers.”

Volkswagen is counting on partnerships with Rivian Automotive Inc in the US and China’s Xpeng Inc to bolster its products, though new models from those efforts won’t be available until next year. Some of its peers are dealing with tumult in top management, with Stellantis having recently named a new chief executive officer and Renault SA seeking a permanent CEO.

The group’s trucking business Traton SE late on Thursday cut its outlook due to the trade hurdles as well as weak economic growth in Europe and declining orders in Brazil. The unit’s adjusted operating result slumped 29% in the second quarter.

There were some bright spots. The namesake VW brand has seen EV sales rise in Europe in recent months, thanks to rebating and buyers increasingly shunning Tesla Inc over Elon Musk’s political activities. The company sees strong order intake momentum continuing through the end of the year in Europe after EV deliveries rose 73% there in the second quarter, driven by robust demand for models including the VW ID.5, the Audi Q4 e-tron and the Skoda Enyaq.

Britain’s private sector companies cut jobs at the fastest pace since February, a closely watched survey showed, as Rachel Reeves’s tax raid pushed up staffing costs.

Employment in both the manufacturing and service sectors fell for the 10th consecutive month during July, the S&P Global Flash UK PMI showed.

Bosses complained that increased payroll costs had forced them into redundancies and hiring freezes.

In April, companies faced an increased in employer National Insurance contributions and the national minimum wage, which were announced in the Chancellor’s Budget last year.

The FTSE 100 rose 1pc to a new record high and the value of the pound fell amid expectations that the jobs slowdown would encourage the Bank of England to cut interest rates next month.

“The flash UK PMI survey for July shows the economy struggling to expand as we move into the second half of the year,” said Chris Williamson, chief business economist at S&P Global.

“The sluggish output growth reported in July reflected headwinds of deteriorating order books, subdued business confidence and rising costs, all of which were widely linked to the ongoing impact of the policy changes announced in last autumn’s Budget and the broader destabilising effect of geopolitical uncertainty.

“Particularly worrying is the sustained impact of the Budget measures on employment. Higher staffing costs have exacerbated firms’ existing concerns over payroll numbers in the current environment of weak demand, resulting in another month of sharply reduced headcounts in July.

“The weak growth trajectory and sustained culling of jobs will add to pressure on the Bank of England to cut rates again at its next policy meeting in August.”

President Trump on Friday put the odds of a trade deal with the European Union at “50-50,” even as negotiators from both sides have expressed optimism about reaching a deal before the Aug. 1 deadline.

“I would say that we have a 50-50 chance, maybe less than that, but a 50-50 chance of making a deal with the EU,” Trump told reporters before departing on a trip to his golf course in Scotland.

Trump also said Friday that letters dictating tariff rates for over 200 countries would go out soon while his administration works to clinch deals with larger trade partners, including the EU, India, and Canada. Trump said the US hasn’t had a “lot of luck” with Canada and suggested he may impose threatened 35% levies on goods not covered by the US-Canada-Mexico trade agreement.

Trump on Friday also said the US and China have the “confines of a deal” as the two sides prepare to meet next week.

Meanwhile, US-Japan trade deal may already be under pressure, as reports on Friday suggest the two sides disagree on how to split profits from Japan’s $550 billion investment into the US.

Trump announced the deal on Tuesday, which includes a 15% tariff on imported goods and a $550 billion Japanese investment. However, the sides do not seem aligned on profit sharing, with Japan seeking a split based on contributions, while the US says it would keep 90%.

In any case, the Japan trade deal may have set a precedent for Trump’s new baseline tariff rate. As the US finalized the deal with Japan and advanced talks with the EU, Trump said tariffs would range from 15% to 50%, with tougher partners facing higher rates.

Trump’s April “Liberation Day” tariffs had set a baseline rate of 10% on all US trading partners.

Earlier this week, Trump also said the US had also struck a trade deal with the Philippines, which will see the country’s imports face a 19% tariff into the US. Trump said US exports will face no import tax in the Philippines as part of the deal.

The White House also unveiled new details of a confirmed trade agreement with Indonesia. Yahoo Finance’s Ben Werschkul reported that a 19% tariff will apply to Indonesian goods.

Read more: What Trump’s tariffs mean for the economy and your wallet

Here are the latest updates as the policy reverberates around the world.

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edges lower amid trade deal reports & ahead of the . hits a record high.

EUR/USD is edging modestly lower after three days of gains amid optimism that the European Union is nearing a deal with the US, which would impose 15% tariffs on EU goods entering the United States. This would be considerably lower than the 30% that Trump threatened on August 1st. This comes after Trump announced the trade deal with Japan earlier in the week.

On the date of the front Eurozone came in stronger than expected, with the , which is considered a good gauge for business activity, rising to 251 in July, up from 50.6. The rose to 51.2, up from 50.5, whilst came in at 49.8, up from 49.5. Suggesting a modest improvement in the eurozone economy across the month, despite uncertainties surrounding U.S. trade.

Attention now turns to the , where the central bank is widely expected to leave interest rates unchanged at 2% after seven consecutive rate cuts, given the uncertainties surrounding the trade outlook.

The markets will be closely watching for clues about the future path of rates. The market is currently pricing in one more rate cut, which could occur in September, by which time the EU-U.S. trade deal should have been finalized, and new projections will be available.

EUR/USD Forecast – Technical Analysis

EUR/USD has rebounded from the 1.1550 low, moving back up towards the 1.1830, a 4-year high reached at the start of the month. However, momentum is showing signs of slowing.

Buyers will need to extend gains above 1.18 to re-enter the rising channel and test 1.1830. A rise above here creates a higher high, opening the door to 1.19.

Meanwhile, sellers will need to break below 1.1580 support to create a lower low.

FTSE Hits A Record High

The FTSE 100, along with its European peers, is heading higher, hitting a fresh record high above 9150, driven by optimism around a potential US-EU trade deal.

Reports suggest that both sides are moving towards a 15% tariff agreement, which will include some exemptions. These latest reports follow the US and Japan’s agreement on a trade deal reached earlier this week, which involves the US implementing 15% tariffs on Japanese imports.

Trade agreements with the EU and Japan mitigate some of the downside risk associated with the looming August 1st tariff deadline.

Strong corporate earnings are lifting the mood, with Reckitt Benckiser (LON: ) surging 10% after upgrading its outlook thanks to strong sales and cool brands. Meanwhile, BT is also up 5% following results, which show encouraging trends.

On the front line, UK and figures fell short of expectations, indicating slowing growth in private sector activity. Meanwhile, the was slightly stronger than expected, showing that the contraction in manufacturing activity slowed.

FTSE 100 Forecast – Technical Analysis

FTSE 100 has extended its rally from the 7535 April low to record highs of 9150. The RSI has tipped into overbought territory, so buyers should be cautious.

With blue skies above, buyers will look to extend gains towards 9200.

Immediate support is seen at 9100 round number and the 9000 psychological level. Below here 8900, the June high comes into play.

Original Post (NYSE: )