ZEW Indicator of Economic Sentiment: 2025 Guide for Australian Investors

Published monthly by Germany’s ZEW – Leibniz Centre for European Economic Research, the ZEW Indicator reflects the expectations of financial experts regarding the German and broader Eurozone economy over the next six months. Each reading is based on a survey of more than 350 financial professionals, making it a leading indicator of sentiment before hard economic data is released.

• Forward-looking: Unlike GDP or employment data, the ZEW is anticipatory, capturing shifts in mood before they show up in economic figures.

• Market-moving: Major movements in the ZEW often trigger volatility in global equities, bonds, and currency markets, including the Australian dollar (AUD).

• Global context: As Australia’s largest trading partners include China and the EU, changes in European sentiment can affect Australian exports, investment flows, and business confidence.

In 2025, the ZEW Indicator has taken on new significance amid ongoing global economic uncertainty. Persistent inflation in the Eurozone, the European Central Bank’s evolving monetary policy, and geopolitical tensions have all contributed to fluctuating sentiment readings this year. For example, the March 2025 ZEW survey revealed a marked improvement in expectations as energy prices stabilised and supply chain disruptions eased, offering hope of stronger growth in Germany and its trading partners.

Australian investors should note:

• Eurozone rebound: A rising ZEW often precedes a pick-up in European industrial activity, which can support Australian resource exports and push up commodity prices.

• Currency implications: Stronger European sentiment typically strengthens the euro against global currencies, influencing the AUD/EUR exchange rate and impacting travel, imports, and overseas investments for Australians.

• Risk appetite: Improved ZEW readings can lift global equities, encouraging risk-on sentiment in the ASX and superannuation portfolios.

While no single indicator should dictate your entire investment strategy, the ZEW can be a valuable tool in your decision-making process. Here’s how savvy Australians are putting it to work:

• Timing global exposures: If the ZEW signals improving European outlook, consider increasing allocation to international equities or ETFs with Eurozone exposure.

• Currency hedging: Use shifts in sentiment to inform your approach to AUD/EUR hedging in global portfolios.

• Sector watch: Pay attention to sectors most sensitive to European growth, such as mining, agriculture, and tourism, when the ZEW turns positive.

• Risk management: Incorporate ZEW readings alongside domestic data (like the NAB Business Survey or RBA statements) to get a holistic view of global risk and opportunity.

Real-world example: In early 2025, a surprise jump in the ZEW Indicator led to a short-lived rally in European bank stocks and a 2% uptick in the AUD/EUR, rewarding Australian investors who had positioned accordingly. Conversely, a sharp drop in late 2024 foreshadowed a downturn in European manufacturing, prompting some local fund managers to rotate out of cyclical stocks.

As economic crosswinds persist, the ZEW Indicator remains a key early-warning system for global investors. With the European Central Bank expected to adjust policy rates in the second half of 2025, and trade negotiations between the EU and Asia ongoing, each monthly ZEW release will carry weight well beyond Frankfurt.

For Australians, staying attuned to these sentiment shifts means being ready to adapt — whether it's rebalancing portfolios, reassessing currency exposure, or capitalising on emerging opportunities in a dynamic global economy.