Ifo Index: Economic recovery continues

The mood in the German economy has improved again despite increased energy prices and points to a further economic recovery. In October, the ifo business climate rose by 0.3 points to 90.2 points, as the Munich research institute announced today.

The most important German economic barometer brightened for the sixth month in a row and reached its highest level since spring 2023. Thanks to a strong order cushion, economists expect the economic recovery in Germany to continue.

The ifo business climate was better than analysts expected. On average, they had expected stagnation to 89.9 points. “The economic recovery is continuing,” commented Ifo President Clemens Fuest on the results of the monthly survey of 9,000 companies.

The indicator was supported by the companies surveyed's increased expectations of future business. The assessment of the current situation, however, was weaker.

The mood in the manufacturing sector, which is important for the German economy, improved significantly. In the industry, thanks to increased new orders, companies have assessed both their current situation and their expectations “substantially better,” according to the statement.

In the service sector, however, the mood has deteriorated. Companies were more dissatisfied with current business. However, there was a better mood among IT service providers. The IT industry is currently benefiting from strong demand as a result of the boom in artificial intelligence (AI), which means that numerous new data centers are being built or planned.

“In view of high energy prices and unrest in neighboring European countries, a decline in the economic barometer would not have been surprising,” said chief economist Thomas Gitzel from VP Bank. The ifo index gives hope that the economic recovery will continue next year thanks to the good order situation.

Klaus Bauknecht, analyst at IKB Deutsche Industriebank, was somewhat more reserved. Companies' expectations would point to a moderate, albeit volatile, economic recovery. However, the ifo business climate does not provide any indication of a viable investment upswing and therefore no sustainable recovery.

“As long as companies are neither convinced of a robust economy nor of a reliable improvement in location conditions, a spirit of optimism that will make private investments a decisive growth driver cannot be expected,” said Bauknecht.