German business sentiment rises to highest level in more than a year

By Maria Martinez

BERLIN (Reuters) -German business morale improved in July to its highest level in 13 months, a survey showed on Friday, although analysts warned the economic outlook remained weak.

The Ifo institute said its business climate index rose to 88.6 in July, the highest since June last year, from 88.4 the month before. Analysts polled by Reuters had forecast a rise to 89.0.

"German business sentiment is still riding the wave of optimism," said Carsten Brzeski, global head of macro at ING, adding that the seventh consecutive increase in Germany’s most prominent leading indicator was remarkable.

Nevertheless, Brzeski said it was unclear whether the optimism was based on stronger economic fundamentals or just wishful thinking.

German businesses seem to be focusing on the bright side of what could happen under a new government, rather than ongoing economic uncertainty and trade tensions, he added.

Germany's parliament approved in March plans for a massive spending surge, with a 500-billion euro ($587 billion) special fund for infrastructure and plans to largely remove defence investment from the rules that cap borrowing.

Leading German companies including Siemens and Deutsche Bank also announced a major investment initiative on Monday aimed at reviving investor confidence in Europe's largest economy.

"This fiscal stimulus will inevitably boost the economy, even though the long-term growth outlook remains extremely subdued," said Joerg Kraemer, chief economist at Commerzbank.

ANAEMIC ECONOMY

"The upturn in the German economy remains anaemic," Ifo president Clemens Fuest said.

While the current conditions index rose to 86.5 from 86.2 in the previous month, the business expectations index was virtually unchanged.

"Uncertainty remains high, which is weighing on the economy," Klaus Wohlrabe, head of surveys at Ifo, told Reuters.

Wohlrabe forecasts the German economy stagnated in the second quarter and it will start growing modestly in the second half of the year.

"But there is a lack of momentum and dynamism," he said.

The economy grew by 0.4% in the first quarter of 2025 from the previous quarter. Preliminary results for the second quarter will be published on Wednesday.

($1 = 0.8512 euros)

(Reporting by Maria Martinez, Christian Kraemer and Rene Wagner. Writing by Friederike Heine. Editing by Miranda Murray and Mark Potter)