Germany’s business sentiment strengthened for the third straight month to a near one-year high in April on a notable improvement in confidence among service providers.

The business confidence index climbed to 89.4 in April from a revised 87.9 in March, monthly survey results from the ifo Institute showed on Wednesday.

This was the highest score since May 2023, when the reading was 91.4. Economists had forecast the index to rise less markedly to 88.9.

Companies were more satisfied with their current situation and their expectations brightened further.

The current situation index advanced to a five-month high of 88.9 from 88.1 in March, while the reading was forecast to rise moderately to 88.7.

Likewise, the expectations indicator posted 89.9, up from 87.7 in the previous month. The score was also above the expected level of 88.9.

“The economy is stabilizing, especially thanks to service providers,” said ifo Institute President Clemens Fuest.

In manufacturing, the business climate index strengthened due to much less pessimistic expectations.

However, companies assessed their current situation as worse. Manufacturers’ order books shrank further and there was no prospect of increased production, data revealed.

Business sentiment among service providers brightened noticeably in April. The improvement was particularly marked in the current situation, while expectations remained virtually unchanged.

The business climate index rose in trade as well. Business expectations improved considerably but remained pessimistic overall. Companies were somewhat less satisfied with their current business.

In construction, the business climate improved for the third straight month, thanks to considerably less pessimistic expectations. Construction companies assessed their current situation as somewhat worse.

Capital Economics economist Franziska Palmas said despite the improvement in economic indicators, a small contraction in GDP this year cannot be ruled out and that any growth will be subdued as stagnant real incomes, weak foreign demand and tight fiscal policy will continue to weigh on activity.

ING economist Carsten Brzeski observed that today’s survey brings back more optimism for the German economy.

“The cyclical trough is behind us, but this doesn’t necessarily mean that a strong recovery is imminent as structural weaknesses remain,” said Brzeski.