German business morale falls in September, Ifo survey finds

German business morale unexpectedly declined in September, a survey showed on Wednesday, as the economic outlook remained weak. The Ifo institute said its business climate index decreased to 87.7 in September from a revised 88.9 in August. Analysts polled by Reuters had forecast a reading of 89.3.

Companies were less satisfied with their current business and expectations also clouded noticeably.

“Prospects for an economic recovery have suffered a setback,” said Ifo president Clemens Fuest. There is a growing sense that the promised reforms of the new government to revive the economy are slower and less far-reaching than initially expected.

The drop in Ifo’s expectations index reflects a sobering mood, as economic reforms have been very sluggish, said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. Germany has struggled to regain momentum this year, with the economy contracting by 0.3% in the second quarter compared with the first three months of the year, as US demand slowed following months of buying ahead in anticipation of US President Donald Trump’s new tariffs.

Capital Economics expects growth will only accelerate meaningfully next year, when fiscal policy is set to be loosened significantly, senior Europe economist Franziska Palmas said.

“And even then, we think that growth will be weaker than most expect,” said Palmas

The Ifo index declined across all sectors with the exception of the construction industry, the data showed.

The unexpectedly sharp decline in the Ifo index dampens hopes for a swift economic recovery, said Robin Winkler, Germany’s chief economist at Deutsche Bank. Nevertheless, he noted that business activity in Germany grew at an accelerated pace in September, hitting its fastest pace in 16 months, the HCOB German flash composite Purchasing Managers’ Index showed on Tuesday.

“The German economy is growing again but only weakly,” Winkler said.

Meanwhile home prices in Germany rose 3.2% in the second quarter, marking the third consecutive quarterly gain as the property sector in Europe’s largest economy seeks stability after a deep recession, data showed on Wednesday.

The increase was smaller than the 3.5% gain in the first quarter. The figure for that period was also revised down from an originally reported 3.8%.

While the recent gains partially offset price declines over the past two years, home values remain 9% below their 2022 peak, as inflation and higher interest rates continue to weigh on the sector.

The increases in home prices stand in contrast to stagnation in other segments of the broader real-estate market, most notably for offices and retail space, two areas that have been under pressure as people work from home and shop online.

Industry experts expect swathes of the market to remain stressed in the months ahead given the weak economy, trade wars and geopolitical risks.

“The crisis isn’t a Lehman-style bang but rather coming in fits and starts,” said Andreas Naujoks, a partner focused on real estate with the law firm Noerr.

Reuters