Germany Economic Recovery Impact on 'Make Europe Great Again' Investment Strategy

Based on the collected information, I will analyze the impact of Germany’s economic recovery prospects on the “Make Europe Great Again” thematic investment strategy for you.

Germany’s economy showed significant recovery signs in 2025. The latest data indicates that Germany’s industrial output growth exceeded expectations, supporting the assumption that the economy will return to growth in the fourth quarter of 2025 [1]. Germany’s investor confidence rose more than expected in December; the ZEW Economic Research Institute report shows that after three years of economic stagnation, the chances of economic recovery are increasing [2].

• Germany DAX Index (23,960.59 points) has shown relatively stable performance recently, with a volatility rate of 0.82% [0]
• iShares MSCI Germany ETF (EWG) has risen by 31.76% year-to-date, showing strong capital inflows [0]
• Germany’s December ZEW Economic Sentiment Index is expected to be 40, higher than the previous value of 38.5 [8]

According to the IMK Institute’s forecast, Germany’s 2026 GDP growth is expected to be 1.2%, far higher than the weak 0.1% in 2025 [3]. The recovery is mainly driven by the following factors:

1. Government investment promotion
   : Government investment in infrastructure and green transformation has become an important driver
2. Private consumption rebound
   : Domestic demand will become the main engine of recovery in 2026
3. Manufacturing recovery
   : Industrial output growth exceeding expectations indicates that the manufacturing industry is gradually regaining vitality

The core of the “Make Europe Great Again” thematic investment strategy lies in seizing structural opportunities in the European economic recovery cycle, especially:

1. Germany’s key role as the locomotive of the European economy
2. Transformation and upgrading of the European manufacturing industry
3. Investment opportunities in green economy and digital transformation

Germany as the largest economy in Europe, its recovery has a spillover effect on the entire Europe. The European Stoxx 600 Index rose by 15% in 2025, and market strategists expect it to rise by about another 7% in 2026 to reach 620 points [4]. This is the first time in eight years that no strategist has predicted a sharp decline in European stocks, reflecting widespread optimism about the European economic recovery.

Germany’s manufacturing recovery will drive the recovery of the entire European manufacturing chain. Especially in the transformation of the automotive industry to new energy, the EU plans to support the transformation of the automotive sector to clean mobility by subsidizing battery production and reducing related costs [5], which provides a clear investment direction for investors.

The European banking sector performed historically strongly in 2025, marking a decisive shift in investor sentiment after more than a decade of underperformance [4]. European banks are no longer seen as deep-value recovery trades but are increasingly judged based on growth execution, efficiency improvements, and capital constraints.

Although expectations are positive, the current assessment of Germany’s economic situation is still deteriorating. The ZEW current situation index fell from 78.7 points last month to 81.0 points, indicating that the current economic situation still faces challenges [2].

The IMK Institute points out that the recovery is mainly driven by domestic demand, while foreign trade remains weak [3]. This may limit the spillover effect of Germany’s economy on other parts of Europe.

The European Central Bank’s monetary policy, the continuation of EU sanctions against Russia, and fluctuations in energy prices and other external factors may affect the sustainability of Germany’s economic recovery.

1. German manufacturing leaders
   : Especially enterprises with global competitiveness in industrial automation and machinery manufacturing
2. New energy vehicle industry chain
   : Benefiting from EU subsidy policies and the transformation of Germany’s automotive industry
3. Green economy transformation
   : Renewable energy, energy-saving technology and other fields

• Direct investment in German ETFs such as EWG, which has risen by 31.76% year-to-date [0]
• Focus on products related to the European Stoxx 50 Index, which is expected to have room for growth

1. From recovery to growth
   : As Germany’s economy stabilizes, the investment focus should shift from recovery concepts to long-term growth drivers
2. Valuation revaluation opportunities
   : European assets still have valuation advantages compared to other major global markets
3. Diversified allocation
   : While focusing on Germany, appropriately allocate assets of other European recovery countries

1. Diversified investment
   : Avoid over-concentration in a single market or industry
2. Pay attention to policy trends
   : Closely track changes in the European Central Bank’s monetary policy
3. Flexible adjustment
   : Adjust the investment portfolio in a timely manner according to changes in economic data

Germany’s economic recovery prospects have an important supporting role in the effectiveness of the “Make Europe Great Again” thematic investment strategy. Based on current data and trends, this strategy has good effectiveness in the short to medium term:

1. Solid recovery foundation
   : Industrial output growth exceeding expectations and rising investor confidence provide fundamental support for investment
2. Spillover effect expected
   : Germany’s economic recovery will drive the overall economic recovery of Europe
3. Valuation advantages still exist
   : European assets are still attractive compared to other major markets

However, investors also need to pay attention to the imbalance in the recovery process and external uncertainties, and adopt moderately diversified and flexible adjustment strategies to manage risks.

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[0] Jinling API Data
[1] Bloomberg - “German Industrial Output Jumps, Supporting Economic Rebound” (https://www.bloomberg.com/news/articles/2025-12-08/german-industrial-production-jumps-supporting-economic-rebound)
[2] Yahoo Finance - “German investor morale rises more than expected in…” (https://ca.finance.yahoo.com/news/german-investor-morale-rises-more-123328861.html)
[3] Yahoo Finance - “Domestic demand to drive German recovery in 2026, says IMK” (https://sg.finance.yahoo.com/news/domestic-demand-drive-german-recovery-083518018.html)
[4] Yahoo Finance - “Last Time Strategists Were This Bullish, European Stocks …” (https://finance.yahoo.com/news/last-time-strategists-were-bullish-081001137.html)
[5] Yahoo Finance - “EU to boost domestic automotive sector with range of …” (https://finance.yahoo.com/news/eu-boost-domestic-automotive-sector-202528063.html)
[6] WSJ - “German Economy Shows Signs of Revival” (https://www.wsj.com/world/europe/german-economy-shows-signs-of-revival-055fd587)
[7] Yahoo Finance - “Next Week Reminder” (https://hk.finance.yahoo.com/news/下周備忘-100532583.html)
[8] AASTOCKS - “Germany December Ifo Business Climate Index” (related economic data release)