German economy surprises with unwavering resilience

Germany is showing an unexpected cyclical rebound, but its durability depends on fiscal stimulus and the implementation of deeper structural reforms.

• The Ifo index rose for the sixth consecutive month, reaching 90.2 in October from 89.9 in September and its highest level in more than three years.
• The current assessment component declined slightly, suggesting that higher energy prices and interest rates are beginning to weigh on the economy.
• The expectations component reached its highest level since early 2025, supporting hopes that fiscal stimulus will increasingly spread through the wider economy.
• Germany’s resilience in the second quarter was partly helped by other regions being hit harder by the closure of the Strait of Hormuz, benefiting some German companies.
• Downside risks include Middle East escalation, elevated or rising oil prices, higher gas prices during the heating season, low water levels affecting transport waterways, and higher interest rates hurting housing and investment.

Takeaway: The German economy is on track for its strongest annual growth performance since 2022, but the article distinguishes this cyclical rebound from a structural recovery and highlights political uncertainty and delayed reforms as major longer-term risks.