German business confidence improves in August due to the EU-US tariff agreement.

Business confidence rose in August in Germany due to improved business expectations following the consolidation of the US-EU trade agreement , despite the fact that "the economic recovery remains weak." The German Institute for Economic Research (Ifo) reported on Monday that the business confidence index for Germany as a whole rose to 89 points in August, up from 88.6 in July. At the same time, expectations reached their highest level since February 2022 .

The Ifo Institute compiles this business confidence indicator based on 9,000 responses per month from companies in the manufacturing, services, sales, and construction sectors. "The assessment of the current situation was worse," said Ifo Institute President Clemens Fuest, when presenting the business confidence survey. "The recovery of the German economy remains weak," admitted Fuest, who is affected by the situation in the manufacturing sector, where business confidence worsened due to his dissatisfaction with this negotiation, which led him to revise his expectations downward. There are still no signs of growth in order intake in the manufacturing sector.

However, confidence improved significantly among capital goods manufacturers. In the services sector, business confidence deteriorated slightly as companies' expectations became more cautious, despite a much better assessment of the current situation. Business confidence improved in architectural and engineering firms . Similarly, business confidence deteriorated slightly in trade because its current situation is worse. In construction, business confidence declined after many months of stability because companies are less satisfied with their current situation, although their outlook for the coming months has improved.

The reading of German business expectations rose to 91.6 points in August, compared to 90.8 the previous month, the best reading since February 2022. The assessment of the current economic situation worsened very slightly, reaching 86.4 points in August, one-tenth of a percentage point lower than in July. Thus, the business confidence index of the Munich Institute for Economic Research (Ifo) improved for the second consecutive month in August, reaching 89 points, compared to 88.6 the previous month.

Last Friday, the Federal Statistical Office (Destatis) substantially revised down the German economy's performance for the second quarter of the year, recording a much sharper contraction than initially estimated , with gross domestic product (GDP) falling 0.3% compared to the previous three months, instead of the 0.1% decline initially estimated.

Thus, Europe's largest economy experienced a marked decline between April and June compared to the 0.3% expansion observed in the first quarter, when companies accelerated their purchases from Germany in anticipation of US tariffs.

In fact, the contraction in German GDP in the second quarter reflects the negative contribution of exports, with a decline of 0.1%, compared to growth of 2.5% in the first quarter, due to a drop in exports of goods (-0.6%), while exports of services increased by 1.4%, while imports of goods and services increased significantly again, by 1.6%.

The German economy's performance in the second quarter was thus significantly lower than that of the major economies of the European Union (EU), with Spain's GDP growing by 0.7%; France's by 0.3%; and Italy's by 0.1%. Meanwhile, the EU as a whole grew by 0.2%, and the United States by 0.7%.