German investor confidence unexpectedly stabilized in September, even as Europe's biggest economy experienced a steep drop in industrial jobs and business creation, showing "painful" signs of structural weakness.

The ZEW indicator of economic confidence rose unexpectedly to 37.3 in September from 34.7 in the previous month. Analysts had expected sentiment to fall to 26.3, according to data by Trading Economics.

The outlook has improved in particular for export-oriented sectors, which had recently suffered a substantial decline, ZEW said. However, the assessment of the current economic situation has deteriorated. It fell 7.8 points from the previous month to minus 76.4 points.

In contrast to Germany, the assessment of the economic situation in the eurozone has increased slightly, ZEW said. At minus 28.8 points, it is currently 2.4 points above the value recorded in the previous month.

Germany has witnessed a steep downturn in its once powerful industrial sectors, losing almost 250,000 jobs since 2019. German business startup creation has fallen to the lowest level in decades, hindered by bureaucracy and regulations.

"Financial market experts are cautiously optimistic and the ZEW indicator has stabilized, but the economic situation has worsened," ZEW President Professor Achim Wambach said. "There are still considerable risks, as uncertainty about the US tariff policy and Germany's ‘autumn of reforms' continues."

Bond Markets Reflect Increasing Concern About Germany

Germany reported an unexpected decline in exports in July, with goods shipped to the US falling to their lowest level since 2021. Exports to the US dropped 7.9% in July to €11.1 billion, extending a four-month decline.

The country's export-oriented economy has contracted or flatlined nine out of the last 12 quarters. GDP expanded by 0.3% in the first quarter, before contracting by 0.3% in the second, according to the latest data from Destatis.

Bond markets have shown concerns about Germany's economic condition, rising around 12.8% year-to-date at the moment, after spiking as high as 23% to 2.93% in March.

Despite serious economic concerns, the benchmark DAX index has remained above 23,000, trading within 5% of its all-time high set in July. Year-to-date, it is up over 17%, comfortably outperforming its US peer, the S&P 500, which has risen 12.5%.

German Industrial Jobs, Startup Creation Decline

Germany has witnessed an acceleration in the downturn of its industrial base, according to an EY study released on August 26.

The number of people employed in German industry declined by 2.1% in the second quarter this year, to 5.43 million. Compared to six years ago, the workforce contracted by 4.3%, with some 245,500 jobs lost since 2019, EY said.

Car manufacturing experienced the steepest decline in job losses, down 6.7% in the second quarter of 2025. In absolute terms, that amounted to around 51,500 jobs lost in a year, Reuters reported.

German Chancellor Friedrich Merz's government has tried to support an increase in domestic investment to boost the country's struggling economy. The government passed a €500 billion special investment fund for infrastructure and climate initiatives. It also amended its fiscal rules to increase defense spending.

"Despite massive investments in wind and solar, German industry is crumbling," Ralph Schoellhammer, head of the Center for Applied History at Mathias Corvinus Collegium in Budapest, said on X. "Former chancellor Scholz promised growth rates of over 3% due to the energy transition, and the media cheered him on."

Germany's Business Startup Numbers Drop Steeply

But it isn't only industrial jobs that have declined steeply. The number of business foundations in Germany is falling dramatically, ZEW reported in a press release on September 4.

Only around 161,000 new companies were founded in 2024 – the lowest number in decades, according to calculations by ZEW Mannheim and Creditreform Wirtschaftsforschung. Between 2015 and 2021, the formation averaged around 168,000 businesses started per year, compared to more than 200,000 in the early 2000s.

"The double burden of economic crisis and bureaucracy is putting a massive brake on start-up activities," Patrik-Ludwig Hantzsch, spokesman of the Verband der Vereine Creditreform, said in the press release.

"High energy costs, a shortage of skilled labor and growing bureaucracy are preventing new businesses from starting up and growing and are blocking innovation."

Manufacturing Sector Witness Decline in Startups

The manufacturing sector has suffered particularly, with only around 5,000 new businesses created in 2024. Start-up activity fell 38%, compared to 2016, when the number was 8,000.

"Industry and its capacity for innovation are the big losers of the reform standstill in Germany," Hantzsch said. "The number of manufacturing companies is shrinking, jobs are being lost, and there is too little investment in the future."

He also pointed to geopolitical uncertainties as dampening the willingness to set up a company.

German companies have struggled to maintain competitiveness, even after the European Union (EU) and the US avoided a full-blown trade war in August. The EU-US trade deal, initiated on August 1, locked in a maximum 15% tariff on most EU exports to the US.

"More than six years since the pandemic began, industrial production in Germany is still more than 10% below its pre-pandemic level," Carsten Brzeski, Global Head of Macro for ING Research, wrote on September 8.

"The fact that capacity utilization in German industry has now remained at the low levels last seen during the financial crisis for more than a year is another painful sign of the structural weakness."

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