Germany: Business climate brightens – Commerzbank

Commerzbank’s Dr. Ralph Solveen notes that the German Ifo Business Climate Index rose from 86.7 to 88.8 in August, with both current conditions and expectations improving. He highlights stronger foreign demand, rising government spending and better sentiment as factors supporting growth. Despite structural problems and weak private investment, he sees upside risks to Commerzbank’s 1% German GDP growth forecast for 2026.

Ifo data point to improving outlook

"The Ifo Business Climate Index improved significantly in August despite another rise in energy prices. The increase of more than two points, from 86.7 to 88.8, is attributable to both more positive expectations and a less negative assessment of the current situation. This suggests that the economy will continue to pick up in the coming months despite headwinds."

"Together with this morning’s upward revision of the GDP figures for the first half of the year, today’s strong Ifo figures cast the outlook for the German economy in a more positive light. The German economy is clearly benefiting from significantly stronger demand from abroad."

"Similarly, the tailwind from higher government spending – which has apparently been subdued so far – is likely to increase in the coming quarters. Furthermore, the improved business sentiment suggests that the negative effects of rising energy prices and the impact of the extreme drought will weigh less heavily on the German economy in the third quarter than previously assumed."

"Even though we continue to expect the German economy to be held back by extensive structural problems – as indicated by the persistently weak private investment – there are certainly upside risks to our 1% growth forecast for 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)