German economy surprises with unwavering resilience
The German economy is showing signs of resilience, evidenced by the sixth consecutive rise in the Ifo index, which reached 90.2 in October, its highest level since 2020. This improvement suggests a possible cyclical rebound driven by fiscal stimulus, despite some emerging pressures from rising energy costs and interest rates. Per the full note from ing-think, the continued increase in the Ifo index, especially in the expectations component, indicates that market sentiment remains cautiously optimistic. However, traders should remain aware of the wider implications for the Eurozone's economic trajectory as the situation evolves.
What the desk is arguing
The desk characterizes the German economy as surprisingly resilient, bolstered by a gradual rise in the Ifo index over the past six months. Per the full note from ing-think, this recent uptick reflects both a strong belief in the effectiveness of ongoing fiscal stimulus and a slight recovery in business sentiment.
Encouragingly, the Ifo index's expectations component surged to its highest level since early 2025, emphasizing the market's optimism. However, the current assessment component's decline highlights emerging challenges, particularly from escalating energy prices and interest rates.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.075, with a target range of 1.04 to 1.12. The current forecasts from our peers support this outlook: - JPMorgan: Targeting 1.10 for March 2026 - BofA: A more conservative 1.04 for March 2026
The desk's view aligns with JPMorgan's slightly bullish stance, while it diverges from BofA's cautious outlook that remains at the lower bound of the consensus range.
How other firms see it
Firms in alignment with the positive outlook include JPMorgan, reflecting a prevailing sentiment of gradual recovery in Germany, while BofA takes a more bearish stance in light of potential headwinds.
As the situation unfolds, keep an eye on the EUR/USD trajectory, which is likely influenced by the economic momentum observed in German indicators. This dynamic could intersect significantly with the actions and communications from the European Central Bank regarding their policy trajectory, especially in a time of contrasting economic signals across regions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The Ifo index has risen for six months, highlighting German economic resilience.
- 02Current assessments face challenges from increasing energy prices and interest rates.
- 03Fiscal stimulus is pivotal for supporting continued recovery in the German economy.
- 04Expectations components of business sentiment indicate larger potential growth ahead.
Market implications
Watch for the EUR/USD pair's sensitivity to further developments in German economic indicators and ECB communications. The levels around 1.075 and 1.10 will be crucial in this context, given the current consensus targets, while the market prepares for potential volatility from other Eurozone members.
Risks to this view
A sharp decline in the Ifo index or unexpected shifts in fiscal policy could quickly reverse the current supportive outlook for the German economy. Rising geopolitical tensions or an abrupt change in energy markets could also pose significant risks that undermine economic stability.
Older quick take Quick take Published 09:30 Germany German economy surprises with unwavering resilience The sixth consecutive monthly increase in the Ifo index strengthens the narrative of German economic resilience. Or perhaps it simply reflects an unwavering belief in the economic effects of the large fiscal stimulus Today's Ifo index confirms that the German economy is enjoying unexpected resilience – and even a small cyclical rebound German economic resilience continues as the country’s leading indicator, the Ifo index, has increased for the sixth consecutive month. In October, the Ifo index stood at 90.2, up from 89.9 in September, and is now at its highest level in more than three years.
However, we're also seeing the first cracks in the picture of a recovering German economy: the current assessment component dropped slightly, indicating that surging energy prices and interest rates are starting to leave their mark. Still, the expectations component, perhaps inspired by last week’s investment fair in Berlin, made another significant jump, reaching its highest level since early 2025. Fiscal stimulus beats short-term risks German resilience seems to be the theme of the moment.
It almost looks as if the economy is gaining momentum without anyone noticing – a bit like the performance of this economist’s favourite German football club this year. Anyhow, the German economy may have weathered the first half of the year better than expected, but past performance is no guarantee of future success. To some extent, the resilience in the second quarter was also driven by the fact that other regions were hit harder by the closure of the Strait of Hormuz, making some German companies something of a beneficiary of the crisis.
Looking ahead, today’s Ifo index suggests that for the German economic outlook, all hopes are still pinned on ongoing fiscal stimulus to increasingly feed through to the entire economy. This hope could prove a reality, even if the government is struggling to meet its spending and investment targets. Despite this hope, however, clear risks remain: war in the Middle East and the potential for further escalation after the US mid-term elections, with oil prices remaining at elevated levels (or worse), as well as the likely incoming shock of higher gas prices in the current heating season.
And there's more. Low water in the main transportation waterways remains another threat to industrial supply chains and production, and the surge in interest rates will take a toll on the housing market and broader investment activity. The more the economy defies short-term risks, the higher the chances of a surprise growth story are.
Let’s see what Friday’s first estimate for third-quarter GDP growth brings; so far, the German economy is clearly on track for its best annual growth performance since 2022. Political uncertainty remains one of the biggest risks for longer-term outlook The biggest unknown for the German outlook, particularly the longer-term outlook, remains whether the government is still willing and able to implement the already announced structural reforms. The important regional state elections took place a month ago, but the reform effort seems to have fallen into early hibernation since then.
A worrisome development, given that the need for reform in Germany goes beyond the measures announced so far – which, to be clear, have not yet been fully implemented. As disruptive as the announced reforms might feel to some, they are mainly aimed at making public finances more sustainable in light of an ageing population. They do very little to improve the country’s economic competitiveness.
To structurally improve Germany’s international competitiveness, the government would have to be much bolder. Think of a substantial reduction of bureaucracy, regulation and taxes. Or a long-term strategy for affordable energy, better education and more innovation.
And much more. All in all, today's Ifo index confirms that the German economy is enjoying unexpected resilience and even a small cyclical rebound. We know a cyclical rebound does not automatically make for a structural recovery, but with the never-ending flow of bad macro news over the last few years, every positive development should be cherished.
IFO index Germany GDP Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Carsten Brzeski Global Head of Macro Older quick take
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