News
German business sentiment improved for a sixth consecutive month in October. The ifo Business Climate Index rose to 90.2 points from 89.9 in September, slightly ahead of the consensus forecast of 90.1, according to data released by the Munich-based ifo Institute on Monday, 26 October. "The economic recovery is continuing," the institute said.
Expectations drive the gain
The improvement came entirely from the outlook. The expectations index rose to 91.6 from 90.4, while companies rated their current situation slightly worse, with that gauge slipping to 88.8 from 89.5.
The numbers by sector
- Manufacturing: the sector balance rose to +1.2 from -2.7. Both the assessment of current business and expectations returned to positive territory for the first time in more than three years, with incoming orders increasing and firms planning to expand production.
- Services: fell to -1.2 from +0.7 as companies were less satisfied with current business, although expectations improved. IT service providers performed particularly well.
- Trade: unchanged at -17.2, with wholesale outperforming retail.
- Construction: improved to -15.5 from -17.0 on noticeably better current business.
Risks remain
"German economic resilience continues as the Ifo index has increased for the sixth consecutive month," said Carsten Brzeski, global head of macro at ING. He warned, however, that clear risks remain, including the war in the Middle East, the potential for further escalation after the US mid-term elections, elevated oil prices and "the likely incoming shock of higher gas prices in the current heating season." Even so, he added: "The more the economy defies short-term risks, the higher the chances of a surprise growth story are."
Higher interest rates, low water levels on key transport routes, bureaucracy, high energy costs and weak competitiveness continue to weigh on Europe's largest economy.
What it means for investors
A manufacturing recovery in Germany is a meaningful signal for the wider eurozone and for its trading partners, including the Middle East, where German industry is a major buyer of energy and a significant investor. The survey also lands days before the European Central Bank's policy meeting on 29 October. A firmer German economy alongside high energy prices gives policymakers less reason to ease.
What to watch
The ECB rate decision on Thursday, 29 October, and upcoming eurozone inflation and GDP data will show whether the improvement in German sentiment is translating into activity — and whether the heating-season gas price risk flagged by economists materialises.
