German business morale unexpectedly fell in November, a survey showed on Monday, as companies lose hope on a recovery of the German economy following two years of contraction.

Germany’s Ifo Business Climate Index slipped to 88.1 in Nov-25 (Oct-25: 88.4), undershooting expectations of 88.5 and underscoring the continued absence of momentum for a near-term recovery. The decline was driven by a sharper deterioration in business expectations, which fell to 90.6 (Oct-25: 91.6), signalling growing pessimism over the outlook. In contrast, firms’ assessment of current conditions inched up to 85.6 (Oct-25: 85.3), suggesting that while present activity remains weak, it has at least stabilised.

Sectoral trends point to broad-based caution. Manufacturers saw sentiment drop further (-13.7; Oct-25: -11.9) as firms turned more sceptical about demand prospects amid persistent global uncertainty. Trade sentiment also weakened (-22.6; Oct-25: -21.5), with retailers particularly discouraged by a softer-than-usual start to the Christmas shopping season. The construction sector registered another decline (-16.2; Oct-25: -15.3), reflecting ongoing headwinds from weak orders and tighter financing conditions. In contrast, the services sector offered a rare bright spot, with sentiment improving to 0.5 from a flat reading, buoyed mainly by a strong rebound in tourism activity.

However, this was partially offset by renewed weakness in transport and logistics, highlighting the uneven nature of the recovery and the broader fragility of business confidence heading into year-end.

Looking ahead, MBSB Research sees that after contracting in 2QCY25 (-0.2%qoq) and stagnating in 3QCY25, the German economy is expected to post a modest uptick in 4QCY25. On an annual basis, growth remained steady at 0.3%yoy in 3QCY25, unchanged for two consecutive quarters, reflecting a sluggish but stabilising environment. A more noticeable pickup is anticipated next year, supported by higher government spending on infrastructure and defence, which should help lift domestic demand and provide a firmer foundation for recovery.

As a trade-dependent nation, any downside risks to external demand outlook (such as slower global growth) could hamper Germany’s economic recovery next year.

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