German business sentiment improved slightly in October, a closely watched survey showed on Monday, but businesses still remain sceptical about Chancellor Friedrich Merz's promised "autumn of reforms."
The Ifo institute's confidence barometer rose to 88.4 points in October from 87.7 in September. Analysts polled by Bloomberg had expected a smaller rise to just 88 points.
But although companies' expectations for the future brightened, their assessment of current business conditions worsened, underlining the scale of the challenge Merz faces in Europe's largest economy in such a fragile state.
"It is not easy to be confident in an upturn," LBBW bank economist Jens-Oliver Niklasch said. "The argument that things can only get better with the economy in such a bad state is unconvincing: things can always get worse."
Europe's top economy was struggling even before U.S. President Donald Trump launched his tariff blitz and China introduced export controls on microchips vital to the German car industry.
Merz has promised a debt-fuelled public spending bonanza, focusing on defense and infrastructure.
However, in a survey published in October by the German Federation of Small and Medium-Sized Businesses (BVMW), more than 8% of respondents said they did not expect any concrete improvement from the reform announcements.
"The hoped-for positive effects of the government's spending plans are becoming ever harder to make out," Niklasch said.
"2026 could also be a difficult year for the German economy."
Federal statistics office Destatis is due to publish a preliminary estimate of gross domestic product (GDP) for the third quarter on Thursday.
