Photo Enguerrand Artaz © LFDE
By Enguerrand Artaz, Strategist, La Financière de l’Échiquier (LFDE)
After setbacks in several Länder, Friedrich Merz’s CDU – the keystone of the coalition in power – emerged weakened, casting a veil of uncertainty over Germany. However, in the background, the german economy is sending encouraging signals.
The business sentiment testifies to this. In the latest IFO business climate survey[1], business confidence rose to its highest level since May 2023, driven in particular by the most positive assessment of the current situation in more than 3 years. And among the different macro economic sectors, it is the manufacturing sector – crucial for The german economy – that is seeing one of the most significant improvements. This relates in particular to orders, which are improving and echo the latest industrial orders figures, on a recovery trend, especially for capital goods. Such a level of orders could lead to a substantial turnaround in industrial production, which is still depressed. It should also lead to an increase in staff. This is also the message sent by companies: hiring prospects in the manufacturing sector have improved sharply, returning to levels not seen for about 3 years.
The IFO survey is not the only one to show this sharp recovery in optimism in German industry. The PMI survey on the manufacturing sector, as at its highest since mid-2022, gives a similar conclusion. While consumer confidence remains low and the woes of the automotive sector continue to paint an unfavourable picture, the improvement in the economic situation is clear. GDP growth is now forecast at 1.3% for 2026, well ahead of the forecasts at the beginning of the year.
And this improvement may not stop there. Indeed, after raising high hopes and then leading to many disappointments, the German fiscal stimulus plans finally seem to be on track. Defence spending is up sharply, more than 30 % higher than the 2025 figures for the same period [2]. Infrastructure investment is expected to increase significantly in the coming months, notably thanks to the infrastruktur Zukunftsgesetz ( infrastructure Future act ), which came into force at the end Of july. This aims to significantly shorten the implementation times of projects concerning, in particular, rail, roads, waterways, aviation and land use planning. “Overriding public interest” status for a large number of projects, elimination of double procedures, exemption from the full planning procedure, deadline… all elements intended to speed up the deployment of the €500 billion infrastructure plan, which has so far been insufficiently implemented.
This prospect would be a tailwind for a German economy where signs of recovery are accumulating. If it proves strong enough, perhaps it could even dispel the recent political clouds.
Disclaimers: These data and opinions of LFDE, as well as the sectors mentioned, are provided for information purposes only and therefore do not constitute an offer to buy or sell a security or investment advice or a financial analysis. Past performance is not a guide to future performance and may vary over time.
[1] German Institute for Economic Research
[2] Data as of August 2026
Disclaimers: These LFDE data and opinions, as well as the sectors mentioned, are provided for information purposes only and therefore do not constitute an offer to buy or sell a security, investment advice or financial analysis. Past performance is not indicative of future performance and is not constant over time.
[1] German economic research institute
[2] Data as of August 2026
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