The mood in the upper echelons of German business has surprisingly deteriorated. In November, the Ifo business climate fell by 0.3 points to 88.1 points, according to the Munich research institute. Analysts had expected a slight increase in Germany’s most important economic barometer. “The German economy doubts that it will recover quickly,” commented Ifo President Clemens Fuest.
Economists point to uncertainty as to whether the state’s billions in spending will actually flow into additional investments in infrastructure and defense. The infrastructure program launched by the federal government no longer seems to spark euphoria, said Thomas Gitzel, chief economist at Liechtenstein-based VP Bank. “Too many funds do not flow into additional investments but are instead used for other expenses.”
“There can hardly be any talk of economic euphoria for 2026”
Although the Ifo index has improved over the course of the year so far, the absolute level indicates that the German economy will only grow moderately. There can hardly be any talk of economic euphoria for 2026.
“In the forecasts of institutes, banks and the federal government, an economic recovery of up to one percent is expected for the German economy next year,” said Ulrich Kater, chief economist at Dekabank. “The only people who don’t seem to see it that way are the companies themselves. There is still a sense of stagnation here.”
Tourism is rejoicing, retail is disappointed with the Christmas business
The decisive factor for the decline in the Ifo index was a poorer assessment of future business. Expectations were significantly dampened, particularly in industrial companies. Commerzbank chief economist Jörg Krämer, for example, referred to stagnating incoming orders in industry. “Without the debt package, hardly any economist would forecast more growth for the coming year.”
After all, the approximately 9,000 companies surveyed assessed the current situation somewhat more positively than in the previous month. There was also a better mood in the services sector, thanks to a significant improvement in the tourism industry.
In contrast, the institute recorded a decline in sentiment in the retail and construction industries. “The retail sector in particular was disappointed at the start of the Christmas business,” wrote the Ifo. Weak demand remains a key bottleneck in construction.
Hoping for recovery in 2026
The German economy is deep in crisis; gross domestic product has shrunk in the past two years. Leading economists expect at best mini-growth for 2025.
The German economy did grow at the beginning of the year, for example because companies brought forward business for fear of US tariffs. In the spring, however, there was another minus and in the summer there was stagnation.
The Bundesbank believes a slight recovery is possible at the end of the year. Economists do not expect noticeable economic growth again until next year thanks to the federal government’s planned spending of billions.
The German economy, which has strong exports, is having a hard time with the increased US tariffs under President Donald Trump, and business with China is no longer running as smoothly as it used to. The People’s Republic is increasingly giving local companies competition, for example in electric cars. Increased prices for food, for example, are also slowing down private consumption; According to surveys, many consumers want to save money during the Christmas season.