Business morale in Germany unexpectedly remained flat in February, a survey showed on Monday. The situation poses a major challenge for the new government after Sunday’s election, in which the competing parties pledged to lead Europe’s largest economy out of a prolonged recession.
The Ifo institute reported that its business climate index remained at 85.2 in February, after January’s reading was revised slightly upwards to the same figure.
Analysts polled by Reuters had previously forecast a second consecutive monthly rise to 85.8.
Sunday’s election saw a victory for the conservative opposition CDU/CSU party led by Friedrich Merz, who has pledged to cut red tape, encourage investment and lower energy prices to boost Germany’s shrinking economy.
The Ifo current situation index unexpectedly fell to 85.0 in February from 86.0 in January. However, the expectations index rose to 85.4 from 84.3, according to the Munich-based institute’s monthly survey of around 9,000 companies.
“The German economy is waiting,” said Ifo president Clemens Fuest, referring to the upcoming phase of government formation talks, with a grand coalition likely.
Analysts see some signs of stability ahead, but warn that strong opposition from left- and right-wing parties could complicate reform efforts, especially on the country’s debt rules that limit spending.
“It is important for the new government to act quickly to stimulate the economy. The main condition for this is quick coalition negotiations with a positive outcome,” said Thomas Gitzel, chief economist at VP Bank Group.
“The figure underlines that the German economy has hit a low point and growth-friendly reforms are urgently needed,” said Jens-Oliver Niklasch, senior economist at LBBW Bank. However, he added that sluggish foreign trade is not a problem that can be solved internally.
“A real economic recovery can only be expected in the second half of this year, at the earliest. For this year, we still expect a contraction in economic output,” Niklasch added.
Europe’s largest economy is in its second consecutive year of recession. Another contraction in 2025 would mark the longest period of economic weakness in the country’s post-war history.
