German business morale rose in October, a survey showed on Monday, though trade woes continued to cast a pall over Europe's largest economy.
The Ifo institute said its business climate index rose to 88.4 in October from 87.7 in September.
Analysts polled by Reuters had forecast a reading of 88.0.
"German business has not yet given up hope for an upturn," said survey head Klaus Wohlrabe. "Expectations are rising in all sectors - industry, construction, services. There is a glimmer of hope in industrial orders: the fall in orders seems to have stopped."
Germany has struggled to regain momentum this year. The economy contracted 0.3% in the second quarter compared to the first quarter, as U.S. demand weakened following months of advance purchasing in anticipation of President Donald Trump's new tariffs.
"The trend for Ifo as well as for the purchasing manager index is pointing upwards," said Commerzbank chief economist Joerg Kraemer. The government's fiscal boost - equivalent to 1% of GDP - should add a further filip in 2026, he added.
"But the lack of reforms may mean that the higher growth is just a flash in the pan."
Companies were less satisfied with their current business conditions, but expectations for coming months had improved, Ifo's survey showed.
"The index has not recovered from last month's mood decline," said Alexander Kruger, chief economist at Hauck Aufhaueser Lampe. "US tariffs and intense competition from China mean things will still be rocky."
The government, which expects only 0.2% growth this year, has predicted the economy will rebound with growth of 1.3% next year and 1.4% in 2027, supported by state spending.
