German business morale rises more than expected in September, Ifo finds

German business sentiment improved more than anticipated in September, according to a closely watched survey published on Thursday, adding to evidence that Europe's largest economy is withstanding an energy price shock that has driven fuel costs to record levels.

The Ifo institute said its business climate index rose to 89.9 in September from 88.8 in August. Analysts had expected a smaller increase to 89.0.

The reading is the third signal this week that a long-awaited recovery is taking hold. It follows flash PMI data on Wednesday showing German business activity expanding at its fastest pace in almost a year. Separately, the country's five leading economic institutes presented a joint autumn forecast that raised 2026 growth expectations to 1.3% from 0.6%.

Ifo's gauge of expectations rose to 90.4 from 89.1 in August, while companies' assessment of their current situation improved to 89.5 from 88.5, the institute said.

Any pickup would be welcome for Chancellor Friedrich Merz, whose conservatives scored their worst state election result since 1949 in Mecklenburg-Western Pomerania on Sunday, as voters punished the government in part over rising living costs.

Merz's government has decided to cut fuel taxes by €0.17 ($0.19) a litre from October 1 until the end of the year.