Germany's economic outlook has darkened as the year draws to a close, with a key survey revealing business morale has slumped to its lowest point in seven months.
Business Confidence Takes a Hit
The latest data from the Ifo institute, released on Wednesday, December 17, 2025, shows its closely watched business confidence barometer fell to 87.6 points in December. This marks a decline from November's reading of 88 points and represents the second consecutive monthly drop, aligning with what financial analysts had anticipated.
Clemens Fuest, President of the Ifo institute, captured the prevailing mood, stating, "The year is ending without any sense of optimism." The survey, which polls approximately 9,000 companies monthly, indicates a broad-based deterioration in sentiment.
Manufacturing and Retail Sectors Struggle
The heart of Germany's economic troubles lies in its industrial sector. The Ifo report highlighted that sentiment among manufacturers worsened significantly, with companies reporting a decline in new orders and plans to cut back on production. This manufacturing slump is compounded by stiff global competition, particularly from China, and the impact of US tariff policies.
The pain is not confined to factories. The survey found that morale also fell in the trade and services sectors. Retailers reported particularly disappointing Christmas sales, a worrying sign for consumer spending during the crucial holiday period.
A Long-Awaited Recovery Fails to Materialise
Economists note that the promised fiscal stimulus from the government has yet to make a meaningful impact. Franziska Palmas, a senior Europe economist at Capital Economics, commented that the survey "suggests that the long-awaited recovery in the German economy still has not materialised."
While Chancellor Friedrich Merz has vowed to kickstart growth, businesses express frustration over a lack of visible, serious reforms or the promised surge in public investment.
Looking ahead, expectations for 2026 are being tempered. Although the government forecasts growth of 1.3 percent next year, driven by increased spending on defence and infrastructure, leading economic institutes have recently downgraded their projections. They now predict a more modest expansion of between 0.8 and one percent for 2026, following a year of meagre growth in 2025.
