German Manufacturing Returns to Growth, Boosting 2026 Outlook
Business confidence in Europe’s largest economy climbed to a six-month high in February, suggesting that the long-awaited rebound may finally be taking shape.
Key Takeaways
- German business confidence hit a six-month high, signaling improving momentum.
- Manufacturing returned to growth for the first time in over three years.
- Government stimulus is boosting orders and domestic demand.
- Trade risks and a stronger euro remain key threats.
The latest reading of the Ifo Business Climate Index rose to 88.6, topping expectations and improving from January’s 87.6. While the level remains historically subdued, the direction of travel is now clearly upward.
Both core components of the survey strengthened. Companies reported a better view of their current situation, with the assessment gauge rising to 86.7. At the same time, expectations for the next six months improved to 90.5, pointing to growing optimism among firms that the worst of the slowdown may be behind them.
Manufacturing Drives The Turnaround
The real shift is coming from industry. After more than three years of stagnation, Germany’s manufacturing sector has returned to expansion.
According to HCOB data, the Germany Manufacturing PMI climbed to 50.7 in February, moving above the 50 threshold that separates contraction from growth for the first time since mid-2022. Economists have described the rebound as a “ketchup bottle effect” – after prolonged pressure, activity is now flowing more rapidly.
New industrial orders surged late last year, including a sharp rise of nearly 8 percent, laying the groundwork for the current acceleration. Production strength has been particularly visible in metal products, electronics, and optical equipment.
The turnaround is being reinforced by a massive fiscal push. A €1 trillion government investment program focused on defense and infrastructure is beginning to feed into company order books, boosting domestic demand and lifting sentiment across supply chains.
Sector Snapshot
Beyond manufacturing, several other sectors showed improvement in February:
Services returned to marginal growth, helped by a recovery in logistics. Construction continued its gradual climb as both current conditions and forward expectations improved. Trade, however, remained under pressure and was the only major segment to report weaker conditions compared with January.
The overall improvement prompted Ifo President Clemens Fuest to suggest that Germany may be “turning a corner,” though risks remain.
Eurozone Comparison
Germany’s rebound stands out within the broader currency bloc.
Once labeled the “sick man of Europe,” Germany is now emerging as a key driver of Eurozone momentum. While France’s business confidence remains relatively stable, private-sector growth there is softer due to weak domestic demand and political uncertainty. Italy is seeing gradual improvement but its manufacturing sector is still hovering near contraction.
At the bloc level, the flash Eurozone Composite PMI rose to 51.9, marking more than a year of continuous expansion. Germany’s resurgence is a central factor behind the latest uptick.
Growth Outlook And Risks
The improving data has already fed into revised growth forecasts. The German Chamber of Industry and Commerce lifted its 2026 GDP projection to 1 percent, up from 0.7 percent previously. Even so, business leaders stress that structural reforms will be necessary to sustain momentum beyond the current stimulus-driven lift.
External risks could still derail progress. Economists warn that potential U.S. tariff measures, ongoing trade tensions, and a stronger euro may weigh on exporters in the months ahead. Analysts at ING and Capital Economics have cautioned that Germany’s recovery remains vulnerable to global demand shocks.
For now, however, the data signal a meaningful shift. After years of contraction and stagnation, Germany’s industrial engine is running again – and that momentum is beginning to ripple through the wider economy.
The information provided in this article is for educational purposes only and does not constitute financial, investment, or trading advice. Coindoo.com does not endorse or recommend any specific investment strategy or cryptocurrency. Always conduct your own research and consult with a licensed financial advisor before making any investment decisions.
Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
