ifo index rises to 86.6: business location risks persist
4 min read
The ifo Business Climate Index rose to 86.6 points in July as expectations brightened. Companies were slightly less satisfied with current business. Abroad, the improved mood counts for little: one in four industrial companies sees its position outside the EU weakening.
Key takeaways
- Stronger expectations lift the index. The business climate index rose to 86.6 points from 85.7 in June. Expectations drove the increase, while assessments of current conditions slipped slightly.
- One in four industrial companies fears losing ground outside the EU. In the automotive industry, the figure is 43 percent. Klaus Wohlrabe describes the competitiveness problems as structural.
- Input prices do not follow sentiment. Producer prices in July were 3.0 percent higher year on year, with metals up 12.6 percent. Electricity was 1.6 percent cheaper.
Related:Choosing a location: energy prices outweigh motorway access / Renewable Energy Sources Act (EEG) amendment 2027: the electricity cost burden on the Mittelstand
Shifting expectations lift the index
On 27 July 2026, the ifo Institute put the Business Climate Index at 86.6 points, up from 85.7 in June. Expectations drove the increase, jumping to 86.7 points. Assessments of current conditions slipped from 87.0 to 86.5. President Clemens Fuest said Germany’s economy was showing less pessimism despite uncertainty in the Persian Gulf.
| ifo Germany | July 2026 | June 2026 |
|---|---|---|
| Business climate | 86.6 | 85.7 |
| Current conditions | 86.5 | 87.0 |
| Expectations | 86.7 | 84.3 |
Source: ifo Business Surveys, 27 July 2026. Index 2015 = 100, seasonally adjusted.
The manufacturing index rose noticeably. Companies reported stronger demand and easing material shortages. Nevertheless, their assessments of current conditions worsened slightly. The climate index mainly reflects expectations for the coming months rather than current business performance.
Export expectations followed a day later, on 28 July: minus 3.3 points, up from minus 3.6 in June. Klaus Wohlrabe, head of ifo Surveys, said exports were still struggling to gain momentum. Electrical equipment and beverage manufacturers remain confident, while confidence returned in mechanical engineering. Expectations improved in the automotive industry but remained negative. Manufacturers of electronic and optical products expect falling exports, as do producers of fabricated metal products.
One in four industrial companies loses ground abroad
What does ifo ask about competitiveness? Industrial companies report whether their position within and outside the EU is improving, worsening or unchanged. This survey is separate from the climate index.
The July survey was published on 19 August. Some 25.4 percent of companies fear losing ground outside the EU. Within Europe, 17 percent see their position weakening. An improvement outside Europe was reported by 5.2 percent, compared with 6.3 percent within Europe. Wohlrabe said German industry was still unable to gain ground in international markets. Pressure remained high, particularly outside Europe. The competitiveness problems were structural. Short-term cyclical improvements alone would do little to change that.
| Sector | Weaker outside the EU | Weaker within the EU |
|---|---|---|
| Industry overall | 25.4 % | 17.0 % |
| Automotive | 43.0 % | 24.8 % |
| Basic metals | 29.1 % | Not available |
| Chemicals | 26.0 % | 22.1 % |
| Mechanical engineering | 25.5 % | Not available |
Source: ifo Business Survey, July 2026, published 19 August 2026. Share of companies reporting a weaker competitive position.
The beverage industry is the only sector to have improved its position both within and outside the EU. For fabricated metal products and electrical equipment, the share outside the EU is around 25 percent, close to the industry average.
In May, ifo reported April figures of 25.2 percent outside the EU and 15.5 percent within it. Outside Europe, little has changed. Within Europe, competition has tightened. In the automotive industry, the share rose from around 38 percent to 43 percent. In basic metals, it fell from 38.3 percent to 29.1 percent. These figures imply neither industrial collapse nor a recovery dividend.
Input prices do not follow sentiment
On 20 August, Destatis (Germany’s Federal Statistical Office) published July’s producer prices. They were 3.0 percent higher year on year and 1.1 percent above June. Intermediate goods rose by 5.4 percent, metals by 12.6 percent, and copper and semi-finished copper products by 28.7 percent. Basic chemicals cost 11.5 percent more.
Energy was 3.8 percent more expensive than in July 2025, driven by petroleum products. Electricity fell by 1.6 percent and district heating by 0.7 percent. Combining electricity and petroleum obscures the cause of rising energy costs. Electricity prices often determine a location’s appeal. Copper, steel and basic chemicals matter for the next pricing calculation.
A machinery manufacturer selling to the US and a chemical company serving EU customers read the same ifo headline but price differently. For one, the question is whether the American buyer will still accept the metals surcharge. For the other, it is whether the European customer will buy the basic chemical at the old price. The industry average of 25.4 percent applies to neither company. The 43 percent figure applies to automotive.
Frequently asked questions
Does the higher ifo index mean conditions have turned around?
No. Expectations drove July’s index; assessments of current conditions did not. Competitiveness findings and producer prices also matter for pricing.
Does the 25.4 percent figure apply to the entire Mittelstand?
The figure comes from ifo’s industrial business survey. It excludes services, retail and wholesale, and construction. The automotive industry’s 43 percent outside the EU cannot replace the average.
Why does electricity matter so little in this calculation?
Electricity was 1.6 percent cheaper in July than a year earlier. Petroleum products drove the 3.8 percent energy increase. Combining both in one cost item attributes the increase to the wrong cause.
Is a price increase enough when sentiment improves?
Only if customers accept it. The ifo figure shows that one in four industrial companies already has a weaker position abroad. A surcharge customers reject accelerates that loss.
What difference does the beverage industry’s exception make?
It shows that pressure is uneven. It offers no relief to automotive or chemicals. A company’s own product range determines the outcome rather than the sector average.
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Translated from the German original using artificial intelligence. The German version is authoritative.
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