German business sentiment rose for a third consecutive month in July, especially in the struggling industrial sector, and pessimism eased despite the ongoing war in the Middle East.
The Ifo institute’s closely watched confidence barometer rose to 86.6 points in July, up from 85.7 points in June.
Analysts surveyed by FactSet had expected the indicator to remain flat.
This rise is driven by “a significant improvement in expectations,” with less pessimism regarding the “uncertain situation” in the Middle East, Ifo said in a statement.
However, Philipp Scheuermeyer of KfW bank noted that some companies responded to the Ifo survey while a ceasefire agreement between the United States and Iran was still in effect.
The outlook brightened notably in the manufacturing sector, where the index climbed from -12.5 points to -9.6 points over the month.
“Demand picked up and material shortages eased,” the statement noted.
A similar trend emerged in services, trade and construction, the other three sectors analysed by Ifo.
Conversely, the assessment of the current business situation, another component of the indicator, was less positive, particularly in industry and services.
An economic rebound hoped for this year by Germany, which remains mired in a deep industrial crisis, is still threatened by the Middle East war and disruptions in the Strait of Hormuz, a critical route for energy shipments.
Energy prices remain highly volatile. They fell on Monday amid an apparent lull in tensions between Tehran and Washington, following more than two weeks of escalation and renewed strikes from both sides.
The statistical office Destatis is set to release its initial GDP estimate for the second quarter on Thursday. Analysts surveyed by FactSet anticipate a slight gain of 0.1 percent, following a 0.3 percent rise recorded in the first quarter.
Chancellor Friedrich Merz’s government — in power for over a year and facing growing unpopularity — has announced a series of reforms aimed at boosting national competitiveness but is under pressure to pick up the pace.
“The federal government’s reforms have likely boosted sentiment in some companies,” said Scheuermeyer.
READ ALSO: Is Germany really the ‘second worst’ country in the world for foreign residents?