Germany’s ZEW Indicator of Economic Sentiment rose by seven points to -10.2 in May 2026, recovering from an over three-year low of -17.2 in April and surpassing market expectations of -19.8. While the improvement signals brightening expectations, the indicator remains in negative territory as investors hope for a swift resolution to the Iran conflict. However, weak industrial production, rising energy prices, and inflation above 2% continue to dampen the outlook. A cautious recovery is emerging for the second half of 2026, contingent on the Middle East conflict subsiding and government stimulus measures taking effect. Sectoral performance varied: the automotive sector worsened by 13 points to -57.2 and mechanical engineering declined by 9.2 points to -32.1, while the IT sector improved by 12.1 points to 56.6, and metal production and construction saw gains. Meanwhile, the current economic situation index fell to -77.8, its lowest level since December 2025 and below the expected -77.5.