German business sentiment rises for sixth month to 90.2 points despite pricey energy

Sixth monthly gain

The Munich-based Ifo institute reported on Monday, 26 October, that its business climate index rose 0.3 points to 90.2 in October, from 89.9 in September. It is the sixth consecutive monthly increase and the highest reading since spring 2023. Analysts had on average expected a stall at 89.9, while a Reuters poll of experts had pointed to 90.0. The survey covered around 9,000 companies. Ifo president Clemens Fuest said the result showed the upturn continuing.

“The economic revival is continuing.”

2026-09

89.9 points

2026-10

90.2 points

Data from the article text

Expectations drive the gain

Business expectations rose, while firms judged their current situation slightly worse than in September. Companies were more upbeat about the months ahead than at any point in more than four and a half years. Manufacturing was the strongest part of the survey, as firms rated both their present position and their expectations substantially better, pointing to a rise in new orders. Both sub-indicators turned positive for the first time in more than three years. Services weakened, because service firms were less satisfied with current business, although IT service providers stood out. Trade was flat, while construction improved.

Growth forecasts edge up

Germany's economy has held up better for months than spring forecasts feared, despite the Iran war and low water levels on the rivers. More and more economists expect stronger growth this year. The federal government recently more than doubled its 2026 growth forecast to 1.3%. The Ifo institute expects 1.4% growth in 2026, after GDP rose 0.2% in 2025 and shrank in the two years before that. Commerzbank chief economist Jörg Krämer called the rise remarkable given recent steep increases in energy prices, especially gas, and said companies apparently expect easing over the medium term.

Federal government forecast for 20261.3%

Ifo forecast for 20261.4%

GDP growth in 20250.2%

Federal government forecast for 2026

1.3 %

Ifo forecast for 2026

1.4 %

GDP growth in 2025

0.2 %

Data from the article text

Stagnation before a year-end pickup

The Bundesbank expects the economy to stagnate in the third quarter of 2026, partly because low water levels slow production in some industries such as chemicals. Ifo economic expert Klaus Wohlrabe also forecast stagnation for that quarter, but said the economy is climbing out of a trough, with electrical engineering and mechanical engineering as its pillars. He noted that energy-intensive industry is running less smoothly. Wohlrabe put the overall picture this way:

“Germany is fighting its way back, but it is not yet back at the front.”

The Federal Statistical Office is due to publish figures for July to September on Friday, 30 October.

Gulf risk and the US midterms

KfW Research economist Philipp Scheuermeyer said the latest survey results look even more positive against the backdrop of a possible renewed escalation in the Persian Gulf after the US midterm elections on 3 November, as well as rising energy prices. He pointed to fiscal stimulus and demand for AI infrastructure components as factors that could carry the upswing forward. Scheuermeyer warned:

“The German economy is certainly not immune to extremely high energy prices, which means developments in the Gulf remain the biggest economic risk.”

ING analyst Carsten Brzeski named the conflicts and a possible further escalation after the US congressional elections, along with likely higher gas prices, as risks. Wholesale oil and gas prices had risen sharply in recent weeks, and KfW said no solution to the conflict between the United States and Iran was in sight. Krämer also pointed to the lack of far-reaching reforms, Trump's tariffs and China's export drive as limits on the recovery.