Germany growth outlook lifts EWG recovery trade

For investors, that makes Germany less of a pure stagnation trade and more of a slow-recovery story, particularly for exporters and domestic cyclical names if demand improves. The iShares MSCI Germany ETF, EWG, has recovered to $41.70 after sliding as low as $37.45 in March, though technical indicators still point to only a partial repair: the fund remains just under its 50-day moving average of about $42.64 and its relative strength index has only recently climbed back above neutral.

The economic backdrop remains fragile. Germany is unusually exposed to global trade because exports account for roughly 40% of GDP, leaving its manufacturers vulnerable to Donald Trump’s tariff policy, China’s competitive push and elevated energy costs that continue to squeeze firms from BASF to Thyssenkrupp. The auto sector, which directly employs about 690,000 workers, remains central to whether the recovery reaches households as well as boardrooms.

That is why the political stakes are so high. Merz took office in May 2025 but has struggled to connect with voters, with his approval rating around 10%, while CDU/CSU trails AfD by 11 percentage points in national polls. In an ARD-DeutschlandTrend survey, just 1% of AfD voters said they were satisfied with the government, underlining how little goodwill the chancellor currently commands among the opposition’s base.

The narrative for Merz is clear: stronger growth could buy time, but it may not be enough on its own to reverse political drift. Economists including DIW’s Marcel Fratzscher say Berlin needs faster deregulation, tax relief and the delivery of promised public investment equal to about 1% of GDP a year if it wants to lift business confidence and blunt support for nationalist parties.

The next real test comes in April 2027, when state elections will show whether better economic numbers translate into political damage control. Until then, Germany’s recovery — if it holds — is likely to be measured as much in polling trends as in GDP.