The atmosphere in the German economy is surprisingly clear and gives hope for an end to the economic doldrums.
As the Munich IFO Institute reports, the IFO business climate rose 0.4 points to 89 points in August. The most important German economic barometer was thus a little stronger than expected from economists. According to economists, the agreement between the EU and the USA contributes to this in the customs dispute that gives companies more planning security.
“The current situation is assessed as unchanged by the company,” commented KfW chief economist Dirk Schumacher. “Nevertheless, the confidence increases to an upswing.”
Highest stand since April 2024
With the increase in August, the IFO index climbed to the highest level since April 2024 for the sixth time in a row. According to the current situation in the company, the assessment of future business has surprisingly improved.
IFO President Clemens Fuest is still reserved. “The recovery of the German economy remains weak,” he commented on the result of the survey among around 9,000 companies. According to the IFO, the mood in industry generally remains cloudy, while the index in retail retail, according to the HDE industry association, declined for the third time in a row. In the service sector, on the other hand, Lage brightened a little, the prospects improved in the construction industry. In the first half of the year she collected more orders, at the same time she benefits from additional expenses for infrastructure.
“No pink glasses”
“The fact that the local companies with delicate optimism look at the coming weeks and months is on the customs deal between the USA and the EU,” said Claus Niegsch, industry analyst at DZ Bank. The agreed basic customs of 15 percent significantly impact Germany’s exporters for many imports from the EU. “But: the uncertainty now flies somewhat.” However, the business planners would not walk around with pink glasses.
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Among economics, hope for an early end of the economic flaut – not least because of the federal government’s loss of billion dollars, defense and climate protection.
Deutsche-Bank-Economist Marc Schattenberg expects the economy to be attracted again in the current half of the year because of the strong state investment incentives. Consumers’ consumption should also increase due to low inflation and robust wage growth.
The state sponsoring bank KFW now expects mini-economic growth of 0.2 percent for 2025 instead of stagnation. “The companies have been able to cope with the significant US volumes since spring 2025,” said chief economist Schumacher.
“The tailwind should outweigh for the German economy at the end of the year,” he says. “As early as the fourth quarter, a first economic boost can be expected from the federal investment offensive.” For 2026, he assumes a price -adjusted economic growth of 1.5 percent – 0.5 percentage points more than previously expected.
Hope for growth this year
With its estimate, the KfW is not alone. Other research institutes and the Bundesbank also consider easy growth to be possible this year and a clear plus in 2026.
The German economy has been in the longest recession for more than 20 years. In 2024 and 2023 it had shrunk noticeably. This year, too, the economy can hardly get off the spot. In the second quarter, economic output fell by 0.3 percent to the previous quarter. In the first quarter of the year, it had grown by 0.3 percentage points – also because companies exhausted from US tariffs.