Economic confidence in Germany rose to its highest level in more than a year in July, according to a closely watched index, fueling hopes that the struggling German economy may be slowly recovering, AFP reported.

The Ifo Institute’s index recorded a slight increase to 88.6 points from 88.4 the previous month, marking the seventh consecutive monthly rise and the highest level since May 2024. However, the increase fell short of analysts’ expectations surveyed by financial data firm FactSet.

“Sentiment among German companies has improved somewhat,” said Ifo president Clemens Fuest. Nevertheless, he emphasized that “Germany’s economic recovery remains sluggish.”

Under pressure from high production costs and growing competition from China in key export sectors such as the automotive industry, Europe’s largest economy entered stagnation even before U.S. President Donald Trump imposed new tariffs in April.

Germany’s new Chancellor Friedrich Merz has introduced a series of tax cuts and large-scale spending plans in an effort to stimulate growth, and the rise in economic indicators since the start of the year has strengthened hopes that the worst may be over.

“A wave of optimism seems to be sweeping over the German economy,” commented ING analyst Carsten Brzeski, but he warned that the country remains “heavily impacted” by trade tensions in the short term.

U.S. and European Union diplomats are currently in negotiations ahead of a deadline set by Trump, who has threatened to impose an additional 30% tariff on EU imports if no agreement is reached by August 1. | BGNES