The German economy seems to be slowly recovering after the past months of crisis. Contrary to all forecasts, the Ifo business climate index rises – and business expectations and the general situation of the companies also improve. However, experts warn against optimism.

The mood on the executive levels of the German economy recovered more strongly than expected in July. The Ifo business climate index rose by 4.2 to 90.5 points, according to the Munich Ifo Institute according to its monthly survey among around 9,000 managers. This is the third increase in a row. Economists surveyed by Dow Jones Newswires had only expected an increase to 89.0 points.

“The companies were noticeably more satisfied with their current situation. They are also cautiously optimistic about the coming months,” said Ifo President Clemens Fuest. “The German economy is gradually recovering.” The Ifo Index is the most important German economic barometer and is considered a reliable indicator for the development of the next six months.

The index for assessing the current situation of the companies surveyed climbed by 3.2 to 84.5 points in July. The economists’ forecast had been 85.0. The business expectations index rose 5.4 to 97.0 points. The economists surveyed had only expected an increase to 93.2 points. The business climate in the manufacturing sector has again improved significantly. The current situation is no longer assessed as badly by industrial companies as in previous months. In addition, companies expect better business in the coming months.

In the service sector, the business climate index has returned to positive territory after a strong increase. The upward trend also continued in trade. The traders revised their assessments of the current situation and the expectations for the coming months upwards. The situation has improved, especially in retail. The business climate has also improved again in the construction sector.

Experts between confidence and skepticism

“The recovery is progressing, but there is still sand in the transmission,” says Deka expert Andreas Scheuerle. Although production activity will start up again, normality is still a long way off. “Rising infection numbers – not only worldwide, but also in parts of Europe -, the US-China conflict and Brexit have the potential to spoil the mood and business of companies.”

Meanwhile, Thomas Gitzel from VP Bank speaks of a turnaround. “The economic downturn has ended for now. There are now some strong catch-up processes at work. This will continue to be the case in the coming months.” Nevertheless, humility should continue to prevail. “As long as no vaccine is distributed, the global economy cannot recover sustainably. And above all, the United States does not have the virus under control.”

Fritzi Köhler-Geib from KfW is also confident. But it was too early to give the all-clear. “The pre-crisis level remains far away for the foreseeable future, and the continued violent rage of the pandemic in large parts of the world is an enormous risk for Germany as an export nation.”

Alexander Krüger from Bankhaus Lampe is much more reserved. “The mood improves, but only sluggishly.” The economic recovery will remain tough.