Stronger-than-expected GDP growth and improving factory sentiment suggest Europe’s largest economy is emerging from a prolonged period of stagnation.
Germany’s ifo Institute said Tuesday that its August survey of domestic companies produced a fourth consecutive increase in its headline Business Climate Index, which rose to 88.8 points and beat the consensus estimate of 87.2. The indicator was last higher in October, when it registered 88.9.
In the accompanying communiqué, the institute said: “Uncertainty continued to decline. Despite the renewed rise in energy prices, the German economy is recovering.”
Ifo reported that its expectations component for the next six months also improved, rising to 89.1 from a revised 86.8. Well ahead of the 87.5 consensus forecast.
The Current Situation Index rose to 88.5, beating the estimate of 87.0 and the previous month’s reading of 86.5.
The institute noted that companies were more satisfied with their current situation and had significantly revised their expectations upward.
Commenting on the survey, Dr Thomas Gitzel, chief economist at VP Bank, said: “This improvement in sentiment stems primarily from the manufacturing sector. Contrary to all the pessimistic predictions, German industry is thus experiencing an upswing.”
Better footing for H2 growth
Earlier in the day, Germany published its final breakdown of second-quarter economic activity. Although backwards-looking, the report also reinforced optimism that the country was proving more resilient than experts had initially thought.
GDP expanded by 0.3% in the second quarter, 0.1 percentage point more than estimated. On an annual basis, the economy grew by 1.0%, ahead of the 0.9% forecast.
“The economy has now grown for three consecutive quarters by an average 1.4% annualised rate, bringing to an end a more than three-year period of stagnation,” JPMorgan economist Greg Fuzesi noted. “The larger-than-expected jump in today’s IFO, driven by improved current conditions and expectations, reinforces the sense of cyclical lift and comes despite the renewed increases in energy prices.”
Germany is often described as Europe’s industrial powerhouse. The institute said sentiment in the manufacturing sector had improved noticeably.
“Company executives assessed their current business performance significantly better. Expectations were also less pessimistic. Production is expected to increase over the next three months. However, companies remain dissatisfied with their order books.”
According to Fuzesi, the improvement in both sentiment and growth is partly attributable to fiscal policy.
“The deficit has widened to an average 4% of GDP in the last three quarters, whereas it was set to consolidate to below 2% of GDP before last year’s sea change. The impact is seen in higher public investment and higher public consumption."
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- Business confidence rises for fourth consecutive month
- Factory sentiment improves noticeably
- Weak order books remain a concern
- Q2 GDP reinforce expectations of cyclical recovery
By Harry Daniels
LiveSquawk News
@HarryDaniels71
16:00 GMT | 25 August 2026
Stronger-than-expected GDP growth and improving factory sentiment suggest Europe’s largest economy is emerging from a prolonged period of stagnation.
Germany’s ifo Institute said Tuesday that its August survey of domestic companies produced a fourth consecutive increase in its headline Business Climate Index, which rose to 88.8 points and beat the consensus estimate of 87.2. The indicator was last higher in October, when it registered 88.9.
In the accompanying communiqué, the institute said: “Uncertainty continued to decline. Despite the renewed rise in energy prices, the German economy is recovering.”
Ifo reported that its expectations component for the next six months also improved, rising to 89.1 from a revised 86.8. Well ahead of the 87.5 consensus forecast.
The Current Situation Index rose to 88.5, beating the estimate of 87.0 and the previous month’s reading of 86.5.
The institute noted that companies were more satisfied with their current situation and had significantly revised their expectations upward.
Commenting on the survey, Dr Thomas Gitzel, chief economist at VP Bank, said: “This improvement in sentiment stems primarily from the manufacturing sector. Contrary to all the pessimistic predictions, German industry is thus experiencing an upswing.”
Earlier in the day, Germany published its final breakdown of second-quarter economic activity. Although backwards-looking, the report also reinforced optimism that the country was proving more resilient than experts had initially thought.
GDP expanded by 0.3% in the second quarter, 0.1 percentage point more than estimated. On an annual basis, the economy grew by 1.0%, ahead of the 0.9% forecast.
“The economy has now grown for three consecutive quarters by an average 1.4% annualised rate, bringing to an end a more than three-year period of stagnation,” JPMorgan economist Greg Fuzesi noted. “The larger-than-expected jump in today’s IFO, driven by improved current conditions and expectations, reinforces the sense of cyclical lift and comes despite the renewed increases in energy prices.”
Germany is often described as Europe’s industrial powerhouse. The institute said sentiment in the manufacturing sector had improved noticeably.
“Company executives assessed their current business performance significantly better. Expectations were also less pessimistic. Production is expected to increase over the next three months. However, companies remain dissatisfied with their order books.”
According to Fuzesi, the improvement in both sentiment and growth is partly attributable to fiscal policy.
“The deficit has widened to an average 4% of GDP in the last three quarters, whereas it was set to consolidate to below 2% of GDP before last year’s sea change. The impact is seen in higher public investment and higher public consumption."