(Bloomberg) — Optimism among German companies grew, feeding hopes of a turnaround for Europe’s largest economy that may also benefit from a change in government following elections on Sunday.
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An expectations index by the Ifo institute rose to 85.4 in February from 84.3 the previous month. This was above the 85 median estimate in a Bloomberg survey. A measure of current conditions fell.
“The German economy is waiting to see how things develop,” Ifo President Clemens Fuest said Monday in a statement. “While companies were slightly less satisfied with current business, expectations brightened somewhat.”
While a quick and strong recovery still looks unlikely, Germany’s prospects are brightening a little after gross domestic shrank for a second straight year in 2024. Monday’s data add to other recent positive developments: Private-sector activity beat expectations in February, while investor confidence rose by the most in two years.
The country is still suffering from cyclical weakness due to weak global demand, as well as structural difficulties like the cutoff of Russian energy supplies, over-regulation and a dearth of skilled workers. US President Donald Trump’s trade threats pose additional risks.
Some observers hope a new government under Friedrich Merz, who leads of the conservative CDU/CSU bloc, will bring more growth-oriented policies capable of eventually helping the country out of its rut, while others remain skeptical.
A key question will be whether the next administration overhauls the debt brake, a limit on state borrowing that’s increasingly seen as unfit for purpose given Germany’s vast investment needs.
–With assistance from Joel Rinneby and Kristian Siedenburg.
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