German business sentiment improved for a sixth consecutive month in October, defying the energy shock from the war in the Middle East. The Ifo Institute's business climate index rose to 90.2 from 89.9 in September.
Manufacturing led the gain. Both the assessment of current conditions and expectations among manufacturers turned positive for the first time in more than three years, as incoming orders increased and firms planned to raise production. Expectations also improved in services, where IT providers performed particularly well, though companies were less satisfied with current business. Trade was unchanged and construction improved.
"German economic resilience continues as the Ifo index has increased for the sixth consecutive month," said Carsten Brzeski, global head of macro at ING. "The more the economy defies short-term risks, the higher the chances of a surprise growth story are."
Risks ahead
Brzeski warned that "clear risks remain", including the war in the Middle East and the potential for escalation after the US midterm elections. Oil prices remain elevated, and a rise in gas prices over the heating season could weigh on industry. Low water levels on key transport routes could also disrupt supply chains. Economists say longer-term growth depends on tackling bureaucracy, high energy costs and weak competitiveness.
