Economic outlook positive once more

Germany's economic outlook is showing signs of improvement, according to recent reports. The ifo index, a key German economic indicator, has increased in August, signalling a positive shift in the country's economic landscape.

The agreed base tariff of 15 percent for many imports from the EU has been a burden for Germany's exporters. However, companies seem to have withstood these significant tariff increases since spring 2025 quite well.

The recovery of the German economy remains weak, according to Ifo President Clemens Fuest. Despite this, prospects in the construction sector have improved, with the ifo index at its highest level since April 2024. The state development bank KfW now expects a mini-economic growth of 0.2 percent for 2025 instead of stagnation.

The current situation in companies was assessed as somewhat worse, but the assessment of future business improved unexpectedly. Economists are growing hopeful about an end to the economic downturn in Germany. Deutsche Bank economist Marc Schattenberg expects the economy to pick up again in the second half of the year.

The federal government's multi-billion-euro spending on infrastructure, defense, and climate protection is expected to stimulate the economy. Consumer spending is likely to increase due to low inflation and robust wage growth.

In the retail sector, however, the index fell for the third consecutive month, according to the HDE trade association. The mood in the industry remains generally gloomy.

Despite the improved outlook, Ifo President Clemens Fuest remains cautious about the recovery of the German economy. The situation in the service sector improved somewhat, but Fuest urges continued vigilance and cautious optimism.

The KfW expects a gradual increase in economic growth momentum in the second half of 2025 after a period of stagnation, forecasting modest growth starting then. Schumacher, the chief economist of KfW, made this statement.

Overall, while the recovery of the German economy remains fragile, there are positive signs that the country is moving towards a period of modest growth. Economists are keeping a close eye on these developments and remain hopeful for a sustained recovery in the coming months.