German business mood rises for a sixth month, despite expensive energy

What happened

The ifo business climate index for Germany rose to 90.2 in October from 89.9 in September, the ifo Institute said on 26 October. It was the sixth rise in a row and the highest reading since May 2023. The index is built from the answers of about 9,000 company managers.

The rise came entirely from the future. The expectations index, which asks firms how they see the next six months, climbed to 91.6 from 90.4. Their assessment of current business fell to 88.8 from 89.5. ifo’s president, Clemens Fuest, said the recovery was continuing.

Manufacturing led. Its business climate rose to +1.2 from −2.7, and ifo said both current conditions and expectations in industry turned positive for the first time in more than three years, helped by more orders. Services fell back, trade was unchanged, and construction improved.

Why a survey can rise while energy bills climb

Energy is expensive. In September German energy prices were 14.9% higher than a year earlier, according to Destatis, with heating oil up 74.9% and motor fuel up 37.1%. Inflation reached 3.3%, its highest since December 2023. An oil shock squeezes firms through their costs and through customers who have less left to spend.

A business survey measures something slightly different from costs: whether managers think business is getting better or worse. Two things are pulling German firms the other way. Government spending on infrastructure and defence is supporting demand, and, as some bank economists noted, firms seem to expect energy prices to ease over time. When expectations rise faster than current conditions, managers are betting that today is close to the low point.

That is why surveys like ifo and the PMI are called leading indicators. They arrive weeks before official growth figures, and expectations tend to turn before output does. But they measure mood, not production. A rise in confidence becomes growth only if firms act on it, by hiring, investing and producing more.

Where it sits in the chain

This is the last link of an oil shock, the real economy. Last week the euro area’s PMI showed growth slowing to a four-month low, with France shrinking and Germany still growing, more slowly. The ifo survey suggests German manufacturers, at least, are looking past the shock.

The hard data are weaker so far. ifo’s own economists expect output to have stagnated over the summer, with low water on the Rhine slowing deliveries for some industries, and a stronger final quarter. The IMF expects German growth of 1.3% this year, after 0.2% in 2025.

What to watch

• The first estimate of German and euro area growth for July to September, due on 30 October.
• German inflation for October, also due on 30 October, and whether energy prices keep rising.
• The European Central Bank’s decision on 29 October, with inflation above target and growth uneven across countries.