Business sentiment in Germany showed a welcome improvement in May 2025, with the business climate index rising to 87.5, up from 86.9 in April and in line with the consensus forecast. The increase reflects growing optimism about the future, even as firms remain slightly cautious about their current business conditions. The easing of uncertainty suggests that the German economy is beginning to regain momentum after months of subdued performance.

Manufacturing led the sentiment rebound, driven by stabilising orders and more upbeat expectations, especially in the food industry. However, the chemical sector remained under pressure. The services sector also recorded a rise in confidence, with logistics firms bouncing back after earlier disruption from customs-related tensions. Nonetheless, some hesitation remained in assessing present business conditions.

Trade saw a marked lift in optimism across wholesale and retail, with traders reporting improved overall satisfaction. Meanwhile, construction sentiment continued its steady climb, buoyed by a more favourable assessment of current projects and a gradual fading of pessimism about the future.

The latest report points to cautious optimism across Germany's economic landscape. While current conditions remain uneven, the more positive forward-looking outlook across key sectors signals early signs of recovery and rebuilding business confidence. This latest update takes the RPI to minus 4 and the RPI-P to 4, meaning that economic activities are within the expectations of the German economy.

Business climate is expected slightly better at 87.5 in May versus 86.9 in April. Current conditions seen at 86.9 versus 86.4. Business expectations seen at 88.0 versus 87.4 in April.

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.