Germany ifo business sentiment rises to 15-month high

Germany’s ifo Business Climate Index rose to 89 in August, up from 88.6 in July, marking its highest reading since May 2024 and exceeding consensus forecasts of 88.6.

The improvement was driven primarily by firms’ expectations for the coming months, which climbed to 91.6 from 90.7, while assessments of the current situation dipped slightly to 86.4 from 86.5, underscoring the fragile nature of the recovery.

In the manufacturing sector, sentiment edged lower (-12.2 vs -11.9), as companies reported weaker satisfaction with present conditions and no tangible pickup in new orders. Despite this, capital goods manufacturers stood out with more optimistic projections, hinting at a potential rebound in investment activity later in the year.

The services sector saw a mild pullback, with the index slipping to 2.6 from 2.8. Current business conditions improved modestly, but expectations became more cautious, suggesting lingering concerns over consumer demand and global uncertainties. Notably, architecture and engineering firms remained relatively upbeat, reflecting steady demand in planning and infrastructure-related projects.

Trade sentiment deteriorated further (-21.4 vs -20.3), driven by weaker sales performance in both wholesale and retail segments. However, forward-looking expectations were slightly less downbeat, signaling that firms may anticipate stabilization if consumer spending holds up.

The construction sector posted a minor decline (-15.3 vs -14.3), ending several months of relative stability. Companies reported worsening satisfaction with current order books, but the outlook for the months ahead brightened somewhat—possibly reflecting expectations of public-sector projects and state support measures cushioning the slowdown.

Overall, the August reading highlights a German economy still struggling to gain momentum, weighed down by weak domestic consumption, sluggish global demand, and high financing costs. However, the improvement in expectations across several key segments indicates that businesses are incrementally more confident about the outlook, suggesting the economy could see gradual stabilization into late 2024, provided external demand strengthens and energy prices remain contained.