The Ifo institute's confidence barometer rose slightly to 89.0 points from 88.6 in July, its eighth straight increase and the highest level since April 2024.
Though morale remained flat or slightly cooler for most firms, "sentiment among capital goods manufacturers improved noticeably", Ifo president Clemens Fuest said.
Businesses assessed their current situation slightly worse than in the previous month, but future expectations posted a notable uptick to 91.6 points from from 90.8.
US President Donald Trump and EU Commission president Ursula von der Leyen unveiled a deal at the end of July to avert a full-blown trade war, with most EU goods facing a 15-percent tariff.
While there has been criticism that the deal is bad for the bloc, LBBW bank analyst Elmar Voelker said that overall, companies welcomed the greater certainty.
"Companies are placing greater emphasis on the positive aspect of improved predictability rather than on the undoubted burden of higher tariffs," he said.
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Trump had threatened a variety of rates and shifted deadlines prior to the deal, heightening uncertainty for the continent's exporters.
German business sentiment had been helped in recent months after Chancellor Friedrich Merz took office promising vast extra spending on defence and infrastructure to boost the stagnant economy.
But the challenges are huge -- German output for the second quarter was revised down last week to minus 0.3 percent from a previous estimate of minus 0.1 percent, the first full quarter since Trump began imposing tariffs in April.
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