Germany’s Business Mood Lifts, But Recovery Still Looks Slow-Motion

Germany’s corporate mood brightened in August, hinting that the worst of the downturn may be passing even if the upturn is slow to arrive. The country’s flagship sentiment survey ticked up to 89.0 from 88.6 in July, the strongest reading since late spring last year and a touch better than forecasters expected. What moved the needle was not how firms feel about today’s conditions—those actually slipped a little—but a firmer belief that the months ahead won’t be as tough as the ones just behind.
That split between “now” and “next” fits the lived reality on factory floors and in service businesses. Order pipelines still look thin in places, and margins remain under pressure. Yet bottlenecks are less severe than a year ago, energy costs have steadied, and the sense of crisis that dominated last winter has faded. The expectations component of the survey captured that shift, rising to its best level since before the war-related shock fully hit Europe’s economy.
Nobody should mistake better sentiment for a boom. Fresh national accounts data show the economy shrank by 0.3% in the second quarter, a reminder that growth is fragile and uneven. Exporters face a tougher backdrop after a flurry of policy moves raised the hurdle for trade with the United States, and capital spending plans are still being red-penciled as companies wait for clearer demand signals. Construction remains a sore spot as higher borrowing costs weigh on developers and new projects.
Even so, there are reasons to think the floor is firming. With the European Central Bank already nudging rates lower, financing conditions should slowly turn more accommodating. Government infrastructure projects—while slow to mobilize—promise steadier demand for industrial suppliers once shovels hit the ground. And in several export-heavy niches, the clearing of excess inventories abroad is reducing the drag that battered Germany’s order books through much of 2024.
Markets largely shrugged at the survey, which is exactly what you would expect if investors view Germany as a “gradual-healing” story. Equities on the continent drifted, the euro held its range, and bond markets were calm. Beneath the surface, however, portfolio managers are sharpening their screens: companies tied to machinery, automation, and investment goods stand to benefit most if confidence slowly turns into orders; those exposed to energy-intensive inputs and residential building may need more policy help—or more patience.
The real test will come as hard data roll in. A few better prints on incoming orders, employment, and prices could confirm that the mood shift is justified and that Germany can eke out modest growth in the third quarter. Disappointments on those fronts would argue that sentiment moved ahead of reality. For now, the message is measured: the lights aren’t flashing green, but they’re no longer blinking red either—and in a year of small victories, that counts.