The Ifo institute’s confidence barometer rose slightly to 88.6 points, up from 88.4 a month earlier, its seventh straight increase and the highest level since May 2024.

The rise was, however, slightly smaller than that expected by analysts polled by financial data firm FactSet.

“Sentiment among German companies has improved somewhat,” Ifo president Clemens Fuest said.

But “the upturn in the German economy remains sluggish,” he added.

Hit by high production costs as well as increasingly fierce Chinese competition for key exports such as cars, Europe’s top economy was in the doldrums even before US President Donald Trump slapped it with new tariffs in April.

But new chancellor Friedrich Merz has pressed ahead with tax breaks and massive spending plans in a bid to revive growth, and an uptick in data since the start of the year has boosted hopes that the worst might be over.

“A wave of optimism seems to have caught the German economy,” ING bank analyst Carsten Brzeski said, though he cautioned that Germany was “highly affected” by trade tensions in the short-term.

US and EU diplomats are currently negotiating ahead of the latest deadline set by Trump, who has threatened a further blanket duty of 30% on EU exports after Aug 1 if no agreement is reached.