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Germany’s Business Activity Climbs to Four-Month High in February

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Germany’s private sector expanded at its fastest pace in four months in February, signaling renewed momentum in Europe’s largest economy. The HCOB Flash Germany Composite Purchasing Managers’ Index, compiled by S&P Global, rose to 53.1 from 52.1 in January, surpassing analysts’ expectations. A reading above 50 indicates growth, pointing to stronger overall business activity across the country.

The services sector remained the main driver of expansion, with its PMI rising to 53.4 from 52.4, beating forecasts. Meanwhile, manufacturing returned to growth for the first time since June 2022, with the index climbing to 50.7 from 49.1 in January. The rebound in factory output marks a significant turnaround after more than three years of contraction.

Economists said the data supports signs of a broader economic recovery, following an unexpected surge in German industrial orders in December — the biggest increase in two years. While employment levels continued to decline, the pace of job losses slowed considerably, suggesting stabilizing conditions. Analysts indicated that Germany’s gross domestic product is likely to post visible growth in the first quarter, barring any unexpected downturn in March.

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German Economy Stuck in Slow Lane, DIHK Sees Just 1% Growth in 2026

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Germany’s economy is projected to grow by only 1% in 2026, according to the German Chamber of Industry and Commerce (DIHK), which warned that deeper reforms are needed for a sustainable recovery. The forecast marks a slight upgrade from its earlier 0.7% estimate, but DIHK managing director Helena Melnikov said the pace remains inadequate compared to global peers. Since 2019, the global economy has expanded by 19%, the U.S. by 15%, and Italy by 6%, while Germany has grown by just 0.2%, effectively stagnating over the period.

Europe’s largest economy continues to face headwinds from geopolitical uncertainty, high operating and energy costs, and weak domestic demand. Although a stronger global economy and increased public spending — particularly on security and defence — have provided limited support, DIHK noted that much of the expected growth in 2026 is driven by statistical and calendar effects rather than structural strength. The chamber urged faster reforms to reduce bureaucracy and lower labour and energy expenses.

The DIHK business climate index, based on a survey of around 26,000 companies, edged up to 95.9 points but remains well below its long-term average of 110. One in four firms expects economic conditions to worsen, while investment and hiring plans remain subdued. Only 23% of companies plan to increase investment and 12% expect to expand their workforce. However, export expectations offered a glimmer of hope, with 22% of businesses anticipating higher overseas sales over the next year.

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German Investor Confidence Hits Nearly Five-Year High on Growth Hopes: ZEW

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German investor confidence jumped sharply in January to its highest level since August 2021, according to the ZEW economic research institute, signalling rising optimism about Europe’s largest economy. The ZEW expectations index climbed to 59.6 points, far exceeding market forecasts of 50.0 and up from 45.8 in December, as investors grew more hopeful that 2026 could mark a turning point for Germany.

Economists attributed the improved sentiment partly to the government’s expansive fiscal package, which includes higher public spending on defence and infrastructure aimed at reversing the economic slowdown. While expectations improved, ZEW President Achim Wambach cautioned that reforms are still needed to enhance Germany’s attractiveness as a business location and ensure sustainable long-term growth.

Despite the upbeat mood, risks remain. Trade tensions, particularly concerns over potential U.S. tariffs on German and other European exports, could weigh on the outlook. The ZEW’s assessment of the current economic situation improved but stayed deeply negative, highlighting that while confidence is recovering, Germany’s economy is not yet out of the woods.

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German Economic Recovery to Begin Slowly, Says Bundesbank

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Germany’s economic recovery after three years of stagnation is expected to begin slowly next year before gaining momentum later, according to the Bundesbank’s latest biannual economic projections. Europe’s largest economy has struggled since 2023 due to a weakened industrial sector, subdued consumer spending and restrained government expenditure. A turnaround began this year after Chancellor Friedrich Merz eased spending rules and announced higher outlays on defence and infrastructure.

Bundesbank President Joachim Nagel said growth would remain modest at first but strengthen from the second quarter of 2026, supported by increased government spending and a revival in exports. The central bank now forecasts economic growth of 0.2% in 2025, an improvement from its earlier expectation of stagnation, while growth in 2026 is projected at 0.6%, slightly below its previous estimate.

Inflation projections, however, have been revised sharply higher due to faster-than-expected wage growth. The Bundesbank warned that strong wage increases, driven by low unemployment and labour shortages, could persist for years. Consumer price inflation is now expected to reach 2.2% in 2025, up from an earlier forecast of 1.5%, influencing the European Central Bank’s decision to raise its own euro zone inflation outlook and maintain a cautious policy stance.

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German Business Confidence Slips Unexpectedly in December, Ifo Survey Shows

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German business sentiment unexpectedly weakened in December, highlighting ongoing struggles in Europe’s largest economy, according to a survey released by the Ifo Institute. The Ifo business climate index fell to 87.6 from a slightly revised 88.0 in November, defying expectations of a rise to 88.2. Commenting on the data, Ifo survey head Klaus Wohlrabe said the year was ending without any positive surprises for the German economy.

Economists said the latest reading reinforces concerns that Germany remains stuck in stagnation after two years of contraction, with only modest growth expected. Analysts noted that the decline aligns with recent drops in purchasing managers’ indexes and indicates that a long-anticipated recovery has yet to take hold. Fiscal stimulus measures announced by the government have so far failed to deliver a meaningful boost, partly due to delays in infrastructure spending and rising costs linked to an ageing population.

Outlook indicators also pointed to growing pessimism among companies for the first half of 2026, while assessments of the current situation remained unchanged. Ifo President Clemens Fuest said the year ended without renewed confidence, and economists added that the lack of broad-based economic reforms has weighed on sentiment. Chancellor Friedrich Merz has pledged further reforms, but businesses remain cautious as tangible policy action has yet to materialise.

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German Business Activity Loses Momentum as Growth Slows in December

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Germany’s private sector growth lost more momentum in December, marking the second straight month of deceleration, according to a PMI survey. The HCOB flash composite Purchasing Managers’ Index fell to 51.5 from 52.4 in November, its lowest level in four months, though it remained above the 50 mark that signals expansion for a seventh consecutive month.

The slowdown was driven by weaker performance in both services and manufacturing. Services activity eased to its weakest pace since September, with slower growth in new business, while manufacturing output and new orders declined more sharply. The manufacturing PMI slipped further into contraction at 47.7, weighed down by falling export demand and reduced factory activity.

Business confidence dropped to an eight-month low amid economic and geopolitical concerns, even as manufacturing sentiment improved slightly on hopes linked to government infrastructure projects, bureaucracy reforms, and defence expansion. Employment in the private sector continued to fall, though at a slower pace, as job gains in services partly offset softer staffing levels in manufacturing.

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German Consumer Mood Lifts Slightly as Festive Shopping Begins

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Germany’s consumer sentiment is set to improve modestly in December, supported by a rise in households’ willingness to spend on Christmas shopping despite lingering concerns about future income. The GfK and NIM consumer climate index edged up to -23.2 for December from -24.1, matching analysts’ expectations. A second month of stronger buying appetite and a small drop in saving intentions helped lift the overall mood.

However, retail expectations remain cautious. An Ifo Institute survey shows that around a quarter of retailers anticipate weak Christmas sales, with many entering the holiday season without high hopes. Only about 10% expect strong performance, while the retail association HDE forecasts €126.2 billion in November–December sales, indicating only modest growth.

Despite the slight pickup in spending sentiment, households remain wary about the year ahead. Economic expectations dipped again, reflecting concerns over Germany’s slow recovery, with GDP expected to grow just 0.2% in 2025 after two years of contraction. Toy retailers—usually strong performers in the Christmas season—are among the most pessimistic, with half expecting poorer results than last year.

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German Business Growth Slows in November as Manufacturing Contracts: PMI

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Germany’s private sector lost momentum in November, with manufacturing unexpectedly contracting and the services sector expanding at a slower pace, according to the latest HCOB flash composite Purchasing Managers’ Index (PMI) compiled by S&P Global. The index slipped to 52.1 from 53.9 in October, marking a two-month low. Despite the decline, the reading stayed above the 50-point threshold for the sixth consecutive month, signaling continued but weakening growth.

The manufacturing PMI fell deeper into contraction territory at 48.4, compared with 49.6 in October and below expectations for a slight improvement. The sector saw sharp drops in new orders, particularly export sales, which experienced their fastest decline since January. The downturn led to falling backlogs and a rise in job losses. Meanwhile, the services PMI also weakened to 52.7 from 54.6, missing forecasts and contributing to a subdued overall outlook.

“This is a major setback for Germany,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noting that hopes for stronger service sector expansion have faded. He warned that the economy is “limping towards marginal growth” in the fourth quarter. While government investment in defence and civil engineering has boosted optimism for future output, the finance ministry recently stated that only a moderate recovery is likely by year-end.

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Google to Invest $6.4 Billion in Germany’s Cloud Infrastructure Expansion

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Alphabet’s Google has announced plans to invest €5.5 billion ($6.4 billion) in Germany between 2026 and 2029 to strengthen its cloud infrastructure and data centre capacity. The investment includes building a new data centre in Dietzenbach near Frankfurt and expanding its existing facility in Hanau, both located in the state of Hesse.

The initiative is expected to secure around 9,000 indirect jobs, marking a significant boost for Germany’s digital economy. Google Cloud’s Northern Europe vice president Marianne Janik said the investment will directly involve about 100 workers at each site. The move follows a series of major tech partnerships in Germany, including a $1.2 billion AI deal between Deutsche Telekom and Nvidia.

German Finance Minister Lars Klingbeil hailed the announcement as a major signal for Germany’s economic future, noting that no state funds are involved. The government continues to promote the country as a prime business destination amid efforts to modernize infrastructure and revive economic growth.

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