German business sentiment improves in October, Ifo survey finds

German Business Sentiment Rises in October as Ifo Index Signals Optimism

German Business Climate and Economic Outlook

By Maria Martinez

BERLIN, Oct 26 (Reuters) - German business morale improved more than expected in October due to greater optimism about future prospects, a key survey showed on Monday.

Ifo Business Climate Index: Key Findings

The Ifo institute said its business climate index rose to 90.2 in October from 89.9 in September. Analysts polled by Reuters had forecast an increase to 90.0.

The index for economic expectations rose to 91.6 in October from 90.4 in September. 

Expert Commentary on Economic Recovery

"The economic recovery is continuing," said Ifo's president Clemens Fuest.

Government Growth Forecasts

The German government has raised its forecast for economic growth to 1.3% in 2026 and 1.1% in 2027. It had expected 0.5% growth for 2026 and 0.9% for 2027 in its April forecasts.

Economist Perspectives

"This sixth consecutive (Ifo) rise suggests, first and foremost, that the German economy is on a growth trajectory, despite numerous adverse circumstances," said Hamburg Commercial Bank chief economist Cyrus de la Rubia.

Growth data for the third quarter will be published on Friday.

Short-Term Challenges and Outlook

Despite the improvement in the Ifo and some other business surveys in recent months, Capital Economics said the German economy is expected to have stalled in the third quarter.

"Nonetheless, along with signs of recovery in the labour market and the ongoing fiscal stimulus, this survey supports our view that the soft patch in the third quarter was partly due to one-off factors and that the economy will return to growth in the fourth quarter," Capital Economics chief Europe economist Andrew Kenningham said.

Current Business Situation Worsens

CURRENT BUSINESS SITUATION WORSENS

While economic expectations rose and drove the headline increase, the current situation was assessed as being slightly worse, with the index declining to 88.8 from 89.5 in the previous month. 

Risks from Energy Prices and International Factors

The massive rise in oil and gas prices, which has also led to an increase in electricity prices and stock market volatility, will undoubtedly take its toll on businesses, de la Rubia warned.

"Furthermore, if the economy in France – the second most important export destination for German firms – remains virtually stagnant due to political unrest and turbulence on the bond markets, this will also be felt in Germany," he warned.

Reporting and Editorial Credits

(Reporting by Linda Pasquini and Maria Martinez, editing by Kirsti Knolle, Ludwig Burger, Toby Chopra)