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Germany’s closely watched ifo Business Climate Index increased to 90.2 points in October, up from 89.9 points in September, according to data released on Monday.
The ifo Business Climate Index is a highly regarded early indicator of economic developments in Germany, published on a monthly basis by the Munich-based Institute for Economic Research.
“German economic resilience continues as the Ifo index has increased for the sixth consecutive month,” wrote Carsten Brzeski, head of global macro at ING, in a research note.
Despite companies being slightly less satisfied with their current business situation, the overall outlook suggests that Germany’s economic recovery is continuing.
Manufacturing sector sees improvement in confidence
In the manufacturing sector, the index rose significantly, with companies reporting substantial improvements in both their current situation and expectations.
Both indicators returned to positive territory for the first time in more than three years. Incoming orders increased, prompting companies to plan an expansion in production.
In the service sector, business confidence weakened as companies expressed less satisfaction with their current performance. However, expectations improved, with IT service providers performing particularly well.
In trade, the index remained unchanged. Companies were more pessimistic about their current situation, although expectations improved slightly. Overall, the wholesale sector performed better than retail.
In construction, the index rose, with companies reporting greater satisfaction with their current business conditions. Future expectations also improved slightly.
However, significant risks remain for Germany’s economic recovery.
“Despite this hope, however, clear risks remain: war in the Middle East and the potential for further escalation after the US mid-term elections, with oil prices remaining at elevated levels (or worse), as well as the likely incoming shock of higher gas prices in the current heating season,” Brzeski wrote.
Low water levels on key transport routes could also disrupt industrial supply chains and production in the near future.
“The more the economy defies short-term risks, the higher the chances of a surprise growth story are,” Brzeski added.
While the latest figures suggest that the economy is showing signs of recovery, economists warn that longer-term growth will depend on addressing structural challenges, including bureaucracy, high energy costs and weak competitiveness.