German business sentiment rises, but recovery faces external threats

The Star

25-07-2025

BERLIN, July 25 (Xinhua) -- Germany's business confidence rose in July to its highest level in over a year, a survey showed Friday. However, economists cautioned that the recovery remains fragile amid persistent external headwinds, including the U.S. tariffs threat.
The ifo Business Climate Index, based on a survey of around 9,000 companies, edged up to 88.6 in July from 88.4 in June, marking the seventh consecutive month of improvement. While firms expressed a more favorable view of current business conditions, their expectations for the months ahead remained subdued.
Sentiment in the manufacturing sector improved slightly but stayed at relatively low levels. The ifo Institute reported that industrial capacity utilization rose from 70 percent to 77.2 percent, though this still reflects below-average levels amid weak incoming orders.
In contrast, the services sector posted a decline, driven in part by a significant deterioration in expectations among IT service providers. Analysts said the downturn may be linked to heightened uncertainty, as the European Union considers retaliatory measures including tariffs or regulatory actions against U.S. technology and digital firms in response to proposed trade actions by Washington.
"Companies were slightly more satisfied with current business, but their expectations remained largely unchanged," said ifo President Clemens Fuest. "The upturn in the German economy remains sluggish."
Carsten Brzeski, global head of macro at ING Research, described the mood as a "wave of optimism" but warned that the outlook is clouded by trade tensions, a stronger euro, and the threat of U.S. tariffs -- all factors that could weigh on Germany's export-driven economy.
A separate ifo survey published Thursday underscored growing concern among German manufacturers. More than 60 percent of 1,500 companies surveyed reported being negatively impacted by the U.S. tariffs, which are set to take effect on Aug. 1 with duties of 30 percent. One-third of respondents said they expect the U.S. market to lose importance by the end of President Donald Trump's term.
Trade tensions are already shaping investment decisions: around 30 percent of companies said they had postponed their U.S. expansion plans, while 15 percent had canceled them altogether.
Despite the external pressures, Brzeski noted that German companies are increasingly turning their attention to opportunities under the new government's economic agenda.
Earlier this week, the German government, in collaboration with major corporations, launched a sweeping investment plan at a business summit in Berlin. Valued at 631 billion euros (739 billion U.S. dollars), the initiative aims to revive Europe's largest economy through 2028, focusing on manufacturing, research and development, and infrastructure construction. (1 euro = 1.17 U.S. dollar)