Business morale in Germany improved for the fourth consecutive month in April, climbing to its highest level since July 2024, according to new data from the Ifo Institute. However, the gains were modest and point to a fragile recovery, with growing divergence across sectors and rising concerns over global trade tensions.
The Ifo Business Climate Index, a closely watched indicator of economic sentiment, rose slightly to 86.9 in April from 86.7 in March, outperforming analyst forecasts. The uptick was driven by stronger assessments of current business conditions, yet the outlook for the coming months remained cautious.
“Companies were more positive about their current situation. However, expectations were gloomier. Uncertainty among the companies has increased. The German economy is preparing for turbulence,” said Clemens Fuest, President of the Ifo Institute.
The sub-index measuring current conditions rose to 86.4, up from 85.7 in March, exceeding market expectations. In contrast, the expectations index—reflecting sentiment over the next six months—dipped to 87.4 from 87.7, suggesting growing anxiety over potential economic headwinds.
Sector Divide Highlights Uneven Confidence
The data reveals a mixed picture across Germany’s key industries. Manufacturing, long considered the backbone of the country’s economy, saw confidence fall again after a brief recovery last month. Weaker export demand and persistent order backlogs contributed to a more pessimistic outlook among factory managers.
By contrast, the construction sector recorded its highest morale since May 2023. This improvement was largely driven by expectations of increased public investment, as the federal government moves ahead with infrastructure projects as part of its broader economic stimulus package.
Service providers also reported improved conditions, particularly in the hospitality industry. However, sentiment was less upbeat in transport and logistics, where high fuel prices and supply chain concerns weighed on outlooks.
Retail and wholesale trade remained under pressure. The index for trade declined once again, led by weakening expectations in wholesale markets, where concerns over purchasing costs and shifting consumer demand remain unresolved.
Global Trade Tensions Loom
External factors continue to cast a shadow over the economic outlook. Recent tariff threats from the United States under President Donald Trump have reintroduced volatility into global markets, especially for export-driven economies like Germany.
Last week, Fuest endorsed the European Central Bank’s recent decision to cut interest rates by 25 basis points, calling it “the right choice” amid mounting global trade uncertainties. He pointed to easing inflation, a stronger euro, and lower oil prices as stabilizing factors.
Despite the recent gains in business sentiment, the Ifo data underscores a cautious mood across Germany’s corporate landscape as companies brace for continued volatility in the global economy.
