German Business Sentiment Improves, Shrugging off Iran War Uncertainties -- Update

By Ed Frankl

Confidence among German firms picked up a little this month as expectations for business climbed, though the roller-coaster ride of oil prices in recent weeks suggests that this recovery could be fragile.

The Ifo Institute said Monday that its business-climate index, based on around 9,000 monthly responses from businesses, rose to 86.6 in July from 85.7 in June. That marked a third straight monthly rise and was better than consensus expectations of economists polled by The Wall Street Journal, who expected sentiment to hold steady.

"Despite the uncertain situation in the Persian Gulf, companies are less pessimistic," Ifo President Clemens Fuest said.

The index nevertheless remains at a weak level, having nosedived after the outbreak of the war in Iran. April's reading was the lowest since May 2020, a time of pandemic lockdowns that put a brake on the economy.

Oil prices climbed through much of July, before sliding on Monday after the U.S. and Iran paused airstrikes. The period in which respondents were surveyed overlapped with the tentative ceasefire between the U.S. and Iran and the end of the agreement.

The Ifo index's rise probably reflects more the initial relief after the U.S.-Iran memorandum of understanding than the recent surge in energy prices, with the short-term outlook highly dependent on the war, said Carsten Brzeski, global head of macro at ING.

"Even if the third consecutive increase in the Ifo index is not yet a reason to prepare for the next growth party in Germany, it at least shows a certain resilience of the economy," he added.

Some of the improvement in sentiment might also be a result of cuts to taxes and benefits proposed by Germany's government this month in an effort to revitalize the economy. Berlin is also pushing through a fiscal stimulus started last year worth more than $1 trillion for infrastructure and defense.

All four of the major sectors tracked by Ifo--manufacturing, services, retail trade and construction--improved in July, with the survey's overall expectations gauge rising to its highest in five months.

"Growth can continue with moderately higher energy prices," said Philipp Scheuermeyer, an economist at KfW Research. "However, if energy exports from the Gulf region remain stalled for too long, the energy-price shock will ultimately take its toll."

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

July 27, 2026 05:03 ET (09:03 GMT)