The Ifo business climate index rose to 90.2 in October, slightly above forecasts, on stronger manufacturing. The current-conditions reading fell, and services weakened, three days before the ECB meets.
Germany's most closely watched business survey contained a milestone for its factories and a warning from the rest of its economy.
The Ifo Institute's business climate index rose to 90.2 in October from 89.9 in September, slightly above the 90.0 that economists expected. The expectations component climbed to 91.6 from 90.4. The assessment of current conditions slipped to 88.8 from 89.5.
The factory turn
The detail is in manufacturing. Ifo said companies' assessment of their current situation and their expectations both returned to positive territory for the first time in more than three years. For an economy whose industrial base has been the main drag on growth, that is a meaningful change in direction, even if it comes from a low level.
Services moved the other way. Ifo said the sector suffered a setback, which helps explain why the measure of current conditions fell even as the headline index rose.
Why the timing matters
The European Central Bank meets on Thursday. A survey showing German industry stabilizing gives policymakers who favor a firmer stance one more data point that the euro-area economy can absorb it. A survey showing services weakening gives those who favor caution one of their own.
The euro was slightly lower against the dollar on Monday, at about $1.119.
Two readings
One reading is that the industrial recovery is real and spreading. Manufacturing expectations and conditions have both turned positive, and the expectations index for the whole economy rose more than a point.
The other is that the improvement is narrow. The headline gain was 0.3 points, current conditions deteriorated, and services, the larger part of the economy, lost ground. One month of positive manufacturing readings after three years of contraction is a start, not a trend.
What to watch
The ECB decision on Thursday, French inflation and growth figures on Friday, and November's Ifo reading for confirmation that manufacturing has turned.