German Business Expectations Rise to the Highest Since 2018

German businesses are growing increasingly optimistic that government support at home and an unprecedented euro-area fiscal plan will bolster demand and drive an economic recovery later this year.

The figures come days after the European Union approved a 750 billion-euro ($877 billion) package championed by Germany and France to revive growth. Europe‘s largest economy will also benefit from the government’s 130 billion-euro stimulus plan announced in June to help spur household consumption and get businesses to invest again.

Ifo President Clemens Fuest said it wasnt surprising that the outlook is improving because activity “is starting from such a low level.”

He also said uncertainty remains high and companies aren‘t confident enough to increase headcount yet. In its earnings report on Monday, Germany’s SAP SE said its “maintaining a slower pace of hiring than in usual circumstances.”

“Companies do see the situation as a fragile one, as being fraught with uncertainty,” Fuest said in a Bloomberg Television interview. “They are planning to reduce the workforce further at this moment. So theres no turnaround yet at the labor market.”

High-frequency data tracking indicators such as restaurant bookings and job postings show Germany‘s economy recovering faster than other nations. But the country’s reliance on exports mean the pace of its rebound also depends on demand improving in key trade partners.

On Friday, indicators of private-sector activity showed the economy expanding for the first time in five months in July. But the numbers also revealed a drop in factory employment, with 30% of manufacturers reporting reduced staff numbers.

The scale of the euro-area downturn will become clearer later this week, with data forecast to show gross domestic product shrank about 12% in the second quarter. Germanys GDP contraction is predicted to have been around 9%.

— With assistance by Kristian Siedenburg, Harumi Ichikura, Catherine Bosley, Alexander Weber, and Francine Lacqua

(Updates with Ifos Fuest starting in fourth paragraph)