Volkswacht Bodensee - German business morale still muted in January

The Ifo institute's confidence barometer came in at 87.6 points, weaker than some forecasts and the same reading as December when it slipped to its lowest for months.

"The German economy is starting the new year with little momentum," said Ifo president Clemens Fuest.

Hammered by a manufacturing slump, fierce competition in key export markets and US tariffs, the German economy has been mired in a long decline.

After meagre growth in 2025 following two years of recession, some have been banking on the turnaround picking up speed sharply this year driven by a public spending blitz.

But the Ifo survey, in which about 9,000 businesses are polled every month, tempered hopes that the eurozone's traditional powerhouse is about to race out of the blocks.

The climate in the service sector deteriorated, with businesses assessing their current situation and expectations for the future as worse, it showed.

The readings in the manufacturing, trade and construction sectors all ticked up.

"The weaker-than-expected German Ifo in January pours some cold water on expectations that the German economy might be finally turning the corner," said Franziska Palmas, senior Europe economist at Capital Economics.

"We think the recovery will be slower than most anticipate."

The government is forecasting growth of 1.3 percent this year, supported by a debt-fuelled spending bonanza on defence and infrastructure.

But, with worries growing that spending will not be accompanied by much-needed reforms, some economists have in recent times downgraded their forecasts to between 0.8 and one percent expansion for 2026.

R.Braegger--VB