The mood in the boardrooms of German companies is brightening more than expected and is fueling hope for an economic recovery. In February, the Ifo index, the most important German economic barometer, rose more than expected and provided the next signal of slight growth after years of crisis. If it weren’t for Donald Trump: The US President’s customs policy is once again unsettling, as he promptly announced new tariffs after his defeat at the Supreme Court.
In February, the Ifo business climate index rose by 1.0 points to 88.6 points. Companies were more satisfied with their current business, and expectations also improved, according to the Ifo Institute. “The German economy is showing the first signs of recovery,” said President Clemens Fuest, commenting on the results of the latest Ifo survey of 9,000 companies. Accordingly, the business climate increased in industry, service providers and construction. There was only a slight decline in retail.
“Germany is climbing out of the economic trough”
“The numbers underline the turnaround in the industry,” says Jens-Oliver Niklasch, economist at Landesbank Baden-Württemberg (LBBW). Of course, Trump’s latest tariff escapades are likely to put pressure on companies. Nevertheless, the leading indicators were pointing upwards, he wrote, with a view to the recently increased industrial orders.
The German economy, which only recorded mini-growth in 2025 and had shrunk in the previous two years, will grow by one percent in 2026, according to the federal government’s estimates. According to the Bundesbank, there will be a cautious upward trend in the first quarter.
“Germany is climbing out of the economic trough,” wrote Christoph Swonke, economic analyst at DZ Bank. Just in time for the milder temperatures, Germany’s economy is also warming up – “at least in small steps”. The upward trend is primarily due to the fiscal packages for infrastructure and defense. “Nevertheless, the global situation remains extremely fragile.”
Robin Winkler, chief German economist at Deutsche Bank, sees reason for more optimism than generally assumed. “We are seeing increasingly clear signs that the economy is picking up momentum.”
Export record in the electrical industry
The German electrical and digital industry is delivering positive news, increasing its exports to a record value of almost 258 billion euros in 2025 – despite the tariff dispute with the USA. According to the industry association ZVEI, strong European business and skyrocketing exports in December helped.
The mechanical engineering association VDMA also reported higher exports at the end of 2025. In the annual balance sheet, global exports of machinery and equipment fell by 1.8 percent compared to 2024, and business with the USA fell by eight percent due to tariffs.
Next chapter in the tariff dispute with Trump
And the tariff dispute is already entering the next round: After his defeat in front of the Supreme Court at the weekend, Trump announced new global tariffs of temporarily 10 and then 15 percent on imports to the USA.
The Supreme Court had banned Trump from imposing tariffs on imports of goods from many countries, citing an emergency law from the 1970s. It is now unclear whether companies will get back billions in amounts they paid too much.
Following the court decision, the US Customs Authority has partially stopped collecting duties. Tariffs based on emergency powers would no longer be imposed starting Tuesday. Other import tariffs remain unaffected, such as those for national security reasons or unfair trading practices.
Is the tariff deal with Washington overturning?
There are also doubts as to whether the trade deal between Brussels and Washington last summer will even be implemented. At that time it was agreed that a maximum tariff of 15 percent would apply to most EU imports to the USA. The agreement still needs to be approved by the EU Parliament. The chairman of the trade committee, Bernd Lange, called for the deal to be suspended ahead of a special meeting of the negotiating team in the EU Parliament on Monday.
“Armaments orders are not yet making an upswing”
Ulrich Kater, chief economist at Dekabank, believes that the USA’s tariff capers should not be overestimated. “For companies, planning security is now more important than whether tariffs will go up or down again.”
Many experts see the biggest construction sites for the German economy at home anyway. Unlike in the first half of 2025, the Ifo business climate is not yet clearly pointing upwards, wrote Commerzbank chief economist Jörg Krämer. “The lack of the necessary broad economic reforms is weighing on the mood. Armament orders alone do not bring about an upswing.”
