German business sentiment improves more than expected in October – Ifo

The latest Ifo Institute survey indicates a surprising improvement in German business sentiment, with the Ifo business climate index rising to 86.5 in October, surpassing both the previous month’s 85.4 and market expectations of 85.6.
This rebound marks the end of a four-month streak of declining business morale and offers a hint of optimism for the German economy as it enters the fourth quarter. The improvement follows a purchasing managers’ index report that showed business activity contracting at a slower pace, suggesting a temporary stabilization in Europe’s largest economy, despite ongoing industrial sector challenges.

Economists remain cautious, however, warning that Germany could face a challenging winter due to external factors such as weaker global demand and persistent industrial sector struggles.
Calls are increasing for domestic policy interventions to stimulate economic growth.
The German government has pledged to tackle these structural issues with initiatives aimed at reducing bureaucracy, enhancing labor market flexibility, and attracting investment. Chancellor Olaf Scholz plans to host a meeting with industry leaders next week to strategize a pathway out of the downturn.

Official third-quarter economic data, expected next week, may confirm a technical recession, as Germany saw a small 0.1% contraction in the second quarter, with additional contraction likely in Q3. The government’s forecast for 2024 predicts a 0.2% GDP decline, signaling a second consecutive year of contraction and solidifying Germany’s status as one of the weaker performers among large eurozone economies.