Economic outlook improves: Sixth consecutive increase in Ifo index

In a positive development for Germany's economy, the Ifo Business Climate Index has risen for six consecutive months, reaching 89 points in August - its highest level since April 2024. This upward trend suggests that the long economic crisis in Germany might be coming to an end.

Commenting on the improved business sentiment, KfW's chief economist, Dirk Schumacher, stated that companies still find the current situation challenging, but confidence in a recovery is growing. Schumacher also forecasted 0.2% economic growth in 2025, a promising outlook for the state promotional bank KfW in Frankfurt.

The improved assessment of future business, despite a slightly worse assessment of the current situation, is a surprising yet encouraging sign. This optimism can be attributed in part to the agreement between the EU and the US in the trade dispute. Claus Niegsch, sector analyst at DZ Bank, explained that the trade deal, despite the base tariff of 15 percent for many imports from the EU being a burden for exporters, is causing cautious optimism among German companies.

However, economic planners are not wearing rose-tinted glasses. Ifo President Clemens Fuest remains cautious about the recovery of the German economy, stating that the mood in the industry remains generally subdued. Fuest's caution is understandable given the challenging economic conditions that have persisted for several years.

Moreover, Dirk Schumacher also noted that the uncertainty caused by the trade dispute is fading somewhat. This reduction in uncertainty, coupled with the positive developments in the trade relationship with the US, is likely to contribute to the continued improvement in business sentiment in Germany.

In conclusion, while the recovery of the German economy is still a work in progress, the recent positive trends in the Ifo Business Climate Index and the improved business sentiment are encouraging signs. As the situation evolves, it will be interesting to see how these trends continue to unfold.