German business confidence rises as outlook brightens in October

German business confidence improved in October as companies grew more optimistic about future conditions, despite lingering weakness in current activity, data from the ifo Institute showed on Monday.

The ifo business climate index rose to 88.4 points in October from 87.7 points in September, marking its highest level since May. The increase was driven by improved expectations for the coming months, while assessments of the current situation edged slightly lower.

The ifo business climate index is based on a survey of around 9,000 German companies about their current situations and future expectations, with a score of 100 representing the long-term average level of business confidence.

"Companies remain hopeful that the economy will pick up in the coming year," said Clemens Fuest, president of the ifo Institute.

In the manufacturing sector, sentiment strengthened as expectations brightened and the decline in new orders came to a halt. Capacity utilisation rose by one percentage point to around 78%, though it remained below the long-term average of 83%.

The service sector recorded a significant improvement in confidence, with firms less sceptical about the outlook and slightly more positive about current conditions. Sentiment improved particularly in tourism and IT services.

In trade, the climate brightened, driven by less pessimistic expectations, especially among wholesalers. However, retailers reported a slightly weaker assessment of current conditions.

Construction was the only sector to post a decline, as firms turned more pessimistic about the future despite noting a noticeable improvement in current business. The ifo said a lack of new orders continues to weigh on the industry.