In September, the IFO business climate index experienced a noticeable decrease, dropping to 87.7 from 88.9 in August.
This reduction of 1.2 points is significant, especially considering it marks the end of an eight-month growth streak, which had seen the index rise from 84.8 in December 2024. The decline primarily impacted the services sector, hinting at underlying challenges within this segment.
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Sectoral performances and stability in industry
While the services sector faced difficulties, the situation in the industrial sector appeared more stable. In fact, the industrial landscape shows an improvement compared to the end of 2024, with current activity and future outlooks gaining approximately ten points. This indicates a robust performance in certain sub-sectors, despite the overall decline in the business climate index.
Services sector under pressure
The IFO data highlights that the services sector, particularly transportation and logistics, has struggled significantly, contributing to the overall decline of the index. This stands in contrast to the findings from the PMI survey, which reported a positive trend in September, with its composite index soaring to 52.4 from 50.5 in August. The PMI results suggest that while services improved, the industrial sector saw a downturn, showcasing a divergence in sectoral performance.
Manufacturing and wholesale trade resilience
Since the beginning of 2025, there has been a notable shift in manufacturing sentiment, with surveys indicating an uptick in production capacity utilization. These improvements are also reflected in wholesale trade and, to a lesser extent, construction. Specifically, sectors such as electrical equipment, pharmaceuticals, textiles, and transport equipment (excluding automotive) are witnessing positive trends, demonstrating resilience amid broader economic challenges.
Industrial sub-sectors showing promise
The IFO survey reveals a promising development: eight industrial sub-sectors, out of a total of 21, are now classified as favorable. Among these, six are in a state of recovery, while two are experiencing expansion. This marks a significant increase from just three favorable sectors at the end of 2024. Despite the ongoing challenges, this positive trend indicates that the industrial segment is gradually stabilizing.
Future outlook and expected growth
The overall economic growth in Germany is anticipated to remain modest in the third quarter, with forecasts projecting a growth rate of just +0.1% quarter-on-quarter. However, the recent investment support measures approved by the Bundestag in September are expected to begin showing effects largely from the fourth quarter onwards. Projections indicate that growth could increase to +0.3% in Q4 and reach an average of +1.4% for the entire year of 2026, providing a more positive outlook for the German economy.
In conclusion, while the IFO business climate index has faced a decline in September, particularly influenced by the services sector, certain industrial sub-sectors are exhibiting signs of resilience and recovery. The overall economic landscape is complex, but with strategic investments and sectoral improvements, a gradual stabilization may be on the horizon for Germany.
