German business confidence rose modestly in August to 89.0 from 88.6, marking the eighth consecutive monthly increase and the highest reading since April 2024. Companies reported slightly worse assessments of their current situation while expectations improved to 91.6 from 90.8, driven mainly by stronger sentiment in capital goods manufacturing. A US-EU trade agreement announced late July reduced uncertainty despite tariff concerns, as many firms prioritized predictability over higher tariffs. Recent political changes, including Chancellor Friedrich Merz's promised spending on defence and infrastructure, and downwardly revised Q2 output underline persistent economic challenges.
German business morale inched up in August, a closely watched survey showed Monday, with companies in Europe's struggling top economy relieved after a US-EU trade deal reduced uncertainty. The Ifo institute's confidence barometer rose slightly to 89.0 points from 88.6 in July, its eighth straight increase and the highest level since April 2024. Though morale remained flat or slightly cooler for most firms, "sentiment among capital goods manufacturers improved noticeably", Ifo president Clemens Fuest said.
US President Donald Trump and EU Commission president Ursula von der Leyen unveiled a deal at the end of July to avert a full-blown trade war, with most EU goods facing a 15-percent tariff. While there has been criticism that the deal is bad for the bloc, LBBW bank analyst Elmar Voelker said that overall, companies welcomed the greater certainty. "Companies are placing greater emphasis on the positive aspect of improved predictability rather than on the undoubted burden of higher tariffs," he said.
German business sentiment had been helped in recent months after Chancellor Friedrich Merz took office promising vast extra spending on defence and infrastructure to boost the stagnant economy. But the challenges are huge -- German output for the second quarter was revised down last week to minus 0.3 percent from a previous estimate of minus 0.1 percent, the first full quarter since Trump began imposing tariffs in April.
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