Ifo Business Climate: Industry and Construction in Eastern Germany Pick Up

Background

Background

Other Sectors

The new figure shows that industrial companies in eastern Germany are rating both their current business situation and their expectations for the coming six months higher. This points to a trend reversal, after industry had suffered in recent years from energy costs, a slump in orders and competitive pressure from Asia. According to Ifo, incoming orders have recently picked up again.

Significance for the Region

A second pillar of the improved sentiment is the main construction sector. After several difficult years with rising interest rates, material costs and a cooling demand for residential construction, the assessment of the surveyed construction companies is also brightening. Initial companies report growing order books and cautious confidence for the second half of the year.

Other Sectors

In the services sector and in trade, sentiment remains subdued but stable overall, according to Ifo. While individual sectors such as logistics and IT service providers benefit from continuing robust consumption, parts of retail complain of persistent price pressure and subdued consumer sentiment. The Ifo figures thus reflect a differentiated picture of the eastern German economy.

Outlook

Significance for the Region

Eastern Germany has long been economically more dependent on industry and construction than western Germany. An upswing in sentiment in these two key sectors therefore has a particular signaling effect: it can boost investment, new hiring and municipal revenues. Local politicians in Saxony, Saxony-Anhalt, Thuringia and Brandenburg are watching the development closely.

However, economic experts warn against excessive euphoria. Eastern German industry remains structurally vulnerable to energy price fluctuations and the pressure to transform towards climate-neutral production. The decisive factor will be whether the improved sentiment translates into actual orders and production increases.

Outlook

For the coming months, the Ifo Institute expects a further slight recovery in the business climate, provided energy and interest rate developments remain stable. The September evaluation, to be published in early October, is intended to show whether the optimism measured in August is sustained. The Bundesbank is also observing the regional indicators in order to draw conclusions about the overall economic situation.

The current publication thus provides an important signal: the economy in eastern Germany is not in a permanent crisis, but is showing signs of life again in important pillars. Politicians and business associations see the increase as an encouraging sign for the further course of the year.