Sentiment across major German businesses held steady at 87.6 points, according to the January edition of the monthly Ifo index. 

Some analysts had predicted a slight rebound in the Munich-based foundation's survey of around 9,000 business leaders but the overall figure was ultimately unchanged.

"Assessments of the current situation edged up somewhat, while expectations were revised slightly downward," Ifo Institute President Clemens Fuest said. "The German economy is starting the new year with little momentum." 

Germany's economy has been struggling in recent years, with only marginal GDP growth of 0.2% in 2025, according to provisional figures, and similarly marginal negative growth figures in the two previous years. Chancellor Friedrich Merz flagged improving the situation as a key goal for 2026 in his New Year's speech.

Sharp increase in struggling manufacturing sector, services slip

Ifo's Fuest reported that the index increased "sharply" in the particularly hard-hit manufacturing sector. 

"Companies assessed current business conditions as more positive. Their expectations were also notably less pessimistic," he said. "However, capacity utilization fell from 78.1 to 77.5%, remaining below the long-term average of 83.2%."

Meanwhile, the institute found a deteriorating climate in the services sector, both in terms of the current situation and the perceived outlook. Ifo also said that the "climate also cooled noticeably in tourism." 

The trade- and construction-specific indices rose. Both retail and wholesale trade rebounded but "remain well below their long-term averages," according to Fuest.

Germany's central bank estimates that the slow pace of growth will continue in the first quarter of 2026, with economists forecasting 1% growth for the year as whole.

Edited by: Wesley Dockery