The business climate index climbed to 85.1 in January, up from 84.7 in the prior month and 0.5 points above the consensus forecast. Current conditions rose by 1 point to 86.1 in January, while expectations fell by 0.2 points to 84.2 compared to the previous month. The worsening business climate and declining orders were due to the manufacturing sector's persistent challenges. Capacity utilisation stagnated at 76.5 percent, far below the 83.4 percent long-term average, reflecting inefficiencies.

The service sector offered a brighter outlook, with a significant rise in business climate and improved current conditions. While scepticism remains, information technology service providers reported a less negative outlook, highlighting resilience in this segment. In trade, stability was observed as the business climate remained unchanged. Wholesale traders reported optimism about their current situation, though retailers' more pessimistic expectations kept the overall outlook cautious. Construction continued to struggle, with a worsening business climate driven by poor expectations. However, a marginal improvement in the current situation suggests a potential short-term reprieve.

These findings highlight stark contrasts in sectoral performance, underscoring persistent uncertainty in manufacturing and construction while services show resilience and trade remains steady. This update takes the RPI to 12 and RPI-P to 6, meaning that economic activities are slightly ahead of market expectations in Germany.

Ifo business sentiment readings tanked headed into year end with no recovery evident in January. Business climate is expected at 84.6 versus 84.7 in December. Current conditions index is seen at 85.2 versus 85.1 and expectations at 84.1 versus 84.4.

Ifo is an acronym from Information and Forschung (research). Published by Munich's Ifo Institute, the Business Climate Index is closely watched as an early indicator of morale in German industry. In addition to overall gauge of sentiment, data are provided on its two components, current conditions and expectations. As a forward looking indicator, the latter is normally seen as the more important. Ifo surveys more than 9,000 enterprises in manufacturing, services, construction, wholesaling and retailing and a separate estimate of sector confidence is supplied for each.

The headline index has a good correlation with developments in overall GDP and so has a major influence in shaping views on how the national economy is performing. The main focus is the expectations index.