After three months of substantial increases, the SAFE Manager Sentiment Index fell from +1.09 to +0.61. Although it remains well above February's level of -0.01, it shows that the optimism of the beginning of the year is fading. The reasons are weaker demand and high uncertainty about economic developments.
"The uncertainty surrounding US trade policies, including tariffs, has led to more cautious statements from company leaders," says Florian Heider, Scientific Director of the Leibniz Institute for Financial Research SAFE, "the Sentiment Index reflects this through the moderation of optimism and is probably a consequence of growing caution among managers." The decline is particularly noticeable in the index based on earnings calls, which decreased from +2.49 to +1.97. Financial reports showed a smaller decrease, from -0.79 to -1.03. Earnings calls usually contain more forward-looking information than financial reports, which are more backward-looking. Thus, the more substantial decline in managers' optimism in earnings calls indicates that particularly managers' expectations for 2025 have deteriorated.
The current ambiguity is also shown in statements made by the managers. One Chief Executive Officer explains: “[...] our geographical footprint, which is very much tilted to high-growth geographies and those geographies that are currently not impacted as much from trade barriers, especially the new trade policy of the [US] administration.” Another company’s chairman of the board, however, comments: “We have faced weak demands in Europe, rising trade barriers, challenging industrial framework conditions in our domestic market, fierce price competition, especially in China.”
The outlook has clouded somewhat due to negative influences, weaker demand for products and services and great uncertainty (e.g., regarding trade barriers). A more detailed analysis of trade tensions and tariff tactics can be found in the SAFE Finance Blog.
Shift in tone reflects external pressures
There is a clear shift toward a more cautious language, particularly regarding the adverse effects of a "weak market," "declining sales," and "trade barriers." Mentions of a "strong market" have dropped significantly, while terms reflecting uncertainty — such as "volatile environment” — have risen. Additionally, the term "momentum" has notably decreased in frequency, reducing the optimism expressed by managers of listed companies in Germany earlier in the year. One of them notes: "It is clearly volatile and operationally quite demanding, but that environment also provides opportunities for us." Another explains: "It's very good to have a strong balance sheet in today's world and a more volatile environment where every morning, you wake up and see some new news."
Alexander Hillert, Professor of Data Science and Finance at SAFE, says: "Our textual analysis shows that companies are now less focused on growth narratives and more preoccupied with external risks." Compared to March, optimistic phrases like 'strong performance' or 'good momentum' appear less frequently, reflecting a more careful and risk-aware communication strategy." This aligns with statements like: "Given all the uncertainties we have on the trade barriers, [international trading] is certainly under pressure," by another manager. Meanwhile, other firms are trying to underline their preparedness: "We have localized over the years our supply chain in anticipation of potential trade barriers," explained a Chief Executive Officer from the medical field, noting the advantages of being a local player in the US market.
The SAFE Manager Sentiment Index
The SAFE Manager Sentiment Index measures the monthly optimism or pessimism expressed by executives of publicly listed companies in Germany. Developed by Alexander Hillert and his team at the Leibniz Institute for Financial Research SAFE, the Index is based on automated text analysis that evaluates positive and negative statements in financial reports and analyst conferences.
The other scheduled release dates for the first half of 2025 are:
Tuesday, 13 May
Wednesday, 11 June
