German business sentiment showed cautious optimism in October 2025, as the business climate index edged up to 88.4 from 87.7 in September, signalling early signs of renewed confidence despite persistent challenges. The improvement was driven largely by better expectations for the months ahead, even though assessments of current conditions weakened slightly.

In manufacturing, optimism strengthened as expectations improved and the decline in new orders stabilised, though capacity utilisation at 78.2 percent remained well below the long-term average of 83.3 percent, highlighting lingering slack in industrial output. The service sector emerged as a bright spot, with tourism and IT services driving a notable upturn in sentiment as firms became less sceptical about future demand. In trade, confidence also improved, particularly in wholesale, despite a modest decline in current business assessments. Construction also bucked the positive trend, as firms reported some recovery in current conditions, while pessimism about future prospects deepened amid continued order shortages.

Indeed, the latest updates suggest that German businesses are cautiously hopeful for recovery in 2026, supported by easing headwinds in manufacturing and robust service sector momentum, though structural weaknesses in construction and subdued industrial utilisation remain key constraints. The latest update takes the German RPI to 11 and the RPI-P to 24, meaning that economic activities are now well ahead of expectations in Germany.

No significant recovery expected in sentiment after last month’s drop. Business climate is expected nearly unchanged at 87.9 in October versus 87.7 in September and 89.0 in August. Current conditions seen at 85.5 versus 85.7 and expectations seen softening to 89.4 from 89.7.

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.