Improved Business Environment in Eastern Germany
In a recent survey conducted by the Ifo Institute in July 2025, it was revealed that the business climate in Eastern Germany experienced a modest but noticeable decline in June. The Ifo Business Climate Index for Eastern Germany decreased from 89.1 points in May to 88.4 points in June.
This decline contrasts with the overall positive trend seen in Germany's national index during the same period. While the overall German Ifo Business Climate Index rose to 88.4 in June, Eastern Germany’s sentiment slipped slightly, indicating more cautious views on current and future business conditions specific to that region.
The decline in Eastern Germany can be attributed to several factors. Sectoral performance differences played a significant role, with manufacturing order books remaining under pressure and retail conditions showing softness. These weaker areas likely dragged down the regional index, as Eastern Germany’s economy is often more sensitive to manufacturing and retail dynamics.
Moreover, persistent uncertainties, such as geopolitical tensions and potential tariff risks, may weigh more heavily on Eastern Germany's businesses, tempering optimism. Despite a national rebound driven by services and construction sectors, these uncertainties likely contribute to the restrained confidence in Eastern Germany.
In the service sector, companies reported a slightly better current situation in June than in May, and service companies viewed their business expectations for the coming months more optimistically. However, the business climate in the Eastern German manufacturing sector significantly deteriorated in June, with industrial companies evaluating their ongoing business much worse than in the preceding month.
In the construction sector, no specific data points were provided for June, but construction companies in Eastern Germany evaluated their ongoing business more negatively in June than in May, without any significant improvement in future business expectations noted. Wholesale trade companies, on the other hand, reported a significantly better current situation in June than in May, and slightly raised their expectations for future business, contrasting the retail trade, which reported slightly worse business than in the previous month and significantly lowered their business expectations.
Joachim Ragnitz and Marcel Thum, the Managing Directors of the Ifo Institute's Dresden Branch, oversaw the survey and analysis of the results. The decline in the Ifo Business Climate Index for Eastern Germany in June 2025, while relatively modest, serves as a reminder of the ongoing challenges facing the region's businesses and the need for continued monitoring and support.
Economic and social policy discussions in June 2025 should consider the decline in Eastern Germany's business climate, a contrast to the national index's rise. The decline is influenced by the manufacturing sector's significant deterioration, retail conditions' softness, and potential tariff risks, which may weigh heavily on Eastern Germany's businesses.
