Confidence among German businesses improved in March, supported by a rebound in manufacturing and optimism over major government spending plans.
Germany’s business sentiment rebounded strongly in March, buoyed by renewed momentum in the manufacturing sector and expectations of fiscal stimulus lifting economic prospects.
The ifo Business Climate Index rose to 86.7 in March, its highest reading in seven months, from 85.3 in February, broadly matching expectations.
The improvement was evenly spread across current assessments and future expectations. The ifo Expectations gauge – a closely watched barometer of sentiment – climbed to 87.7, marking an eight-month high.
The ifo Current Condition gauge rose from 85.6 in February to 87.7 in March, also matching forecasts.
“Sentiment among companies in Germany has brightened,” said Clemens Fuest, president of the ifo Institute.
“Companies were more satisfied with their current business situation, and their expectations rose noticeably. German businesses are hoping for a recovery,” he added.
In manufacturing, sentiment improved markedly, with expectations turning notably less cautious. Firms also viewed their current situation more favourably, although order books showed a slight decline. The service sector also saw a rise in business confidence. Companies expressed a more positive outlook and a clearer sense of optimism, especially among architectural and engineering firms.
In the trade sector, sentiment strengthened again. Traders were less pessimistic about future prospects and assessed their current business situation more positively. The construction sector experienced a more upbeat mood. Firms had a slightly better view of current conditions, and expectations improved, though scepticism remains high. Yet, a persistent shortage of orders continues to weigh heavily on the industry.
Manufacturing leads rebound
On Monday, encouraging signs emerged from S&P Global’s flash Purchasing Managers’ Index (PMI), which showed Germany’s overall business activity rising at its fastest pace in ten months.
The Germany Composite PMI Output Index rose to 50.9 in March from 50.4 in February, the highest since May 2024. The increase was driven by a sharp recovery in manufacturing output, which expanded at the strongest rate in three years, with the output sub-index hitting 52.1.
This marked the first sustained uptick in manufacturing production since early 2022. Stronger domestic demand and efforts by clients to rebuild inventories were cited as key contributors. New manufacturing orders increased – albeit modestly – for the first time in two years.
“Manufacturers have ramped up production for the first time in nearly two years,” said Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. He noted that Germany’s recently approved €500 billion infrastructure and defence investment plan was helping restore business confidence.
“This could mark the beginning of a more sustained recovery,” de la Rubia added, while warning that US tariff policies and weak services performance remained potential headwinds.
Services lose momentum
While the manufacturing sector showed clear signs of revival, the services sector cooled.
The services PMI slipped to 50.2, indicating near-stagnant activity and its weakest performance in four months. New business in the sector declined sharply, and service providers struggled to pass on higher costs through price increases.
Nevertheless, sentiment improved across both sectors, with firms reporting increased optimism for output in the coming months. Analysts attributed part of the boost in morale to the expected impact of Germany’s fiscal stimulus package, which is set to support infrastructure projects and potentially revive demand across both manufacturing and services.
DAX rises as Trump tariff stance weakens
Markets responded positively to the improving sentiment. The DAX index rose 0.8% in morning trading on Tuesday, buoyed by global optimism after US President Donald Trump hinted at a softer approach to upcoming tariffs.
At a White House briefing on Monday, Trump said “a lot of countries” might receive tariff exemptions and added that not all tariffs will take effect on 2 April. He indicated that US levies would still target certain sectors, including lumber, automobiles and pharmaceuticals.
Bayer AG shares rose 4%, leading gains on the DAX, followed by BMW AG (+1.6%) and Deutsche Börse (+1.5%). Sartorius AG and Siemens AG underperformed, falling 2.4% and 1.7%, respectively.
Elsewhere in Europe, the Euro STOXX 50 climbed 0.4%, Italy’s FTSE MIB rose 0.8% and Spain’s IBEX 35 gained 0.9%. The Euro STOXX Bank Index added 0.5%, lifted by a 2.3% gain in Crédit Agricole and a 1.8% increase in ABN Amro.
