German Business Sentiment Hit Seven-Month High in January — Update

By Xavier Fontdegloria

Business confidence in Germany improved in January to its highest level since June, adding to signs of resilient activity at the beginning of the year as optimism returns amid easing concerns over an imminent recession.

The Ifo business-climate index rose to 90.2 in January from 88.6 in December, posting a fourth-consecutive monthly improvement, data from the Ifo Institute showed Wednesday. The rise is broadly in line with expectations from economists polled by The Wall Street Journal.

January data showed business confidence continued to recover from September’s low. However, sentiment remains subdued compared with the situation prior to the Ukraine war, when the index stood at 98.8.

“Sentiment in the German economy has brightened,” Ifo President Clemens Fuest said. “The German economy is starting the year with more confidence.”

The recent fall in natural-gas prices, the implementation of the government’s energy-price cap for firms and China’s swift reopening are likely to have lifted moods.

Overall sentiment improved due to considerably less pessimistic views on the short-term outlook, with the gauge measuring expectations increasing to 86.4 in January from 83.2 in December. However, the index assessing the current situation fell slightly to 94.1 from 94.4.

The Ifo index is based on a poll of about 9,000 companies in manufacturing, services, trade and construction.

Business sentiment improved in all sectors, but the rise was particularly sharp for manufacturing and trade firms. Manufacturers said their current situation improved, while expectations were also brighter amid still-high order volumes and increasing production, the Ifo Institute said.

Services providers and firms in the construction sector were also less pessimistic compared with a month earlier, but their assessment of current business conditions deteriorated, the report said.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com