German Business Sentiment Steady in May, Ifo Index Shows

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The sentiment among companies in Germany remained unchanged in May, according to the ifo Business Climate Index. The index stood at 89.3 points, reflecting mixed feelings across different sectors.

Manufacturing Sees Continued Improvement

In the manufacturing sector, the business climate improved for the third consecutive month. Companies expressed greater satisfaction with their current business situation, and the outlook for the coming months was less pessimistic than in the previous month. Despite these positive signs, the order backlog continued to decline.

Service Sector Faces Challenges

The service sector, on the other hand, experienced a decline in its index. Companies reported somewhat worse assessments of their current business situation, although expectations for the future showed a slight improvement. Notably, some companies reported receiving additional orders.

Trade Sector on the Rise

The trade sector saw a significant upward shift in its index. Business expectations improved considerably, though skepticism still lingers. The current business situation also showed signs of improvement, driven mainly by positive developments in the wholesale segment.

Construction Sector Shows Signs of Recovery

In construction, the index improved again. Companies were more satisfied with their current business situation, and their expectations were somewhat less pessimistic. However, a lack of orders remains a persistent problem for the sector.

Economic Growth and Future Outlook

Germany’s economy grew by 0.2% in the first quarter of 2024, according to the national statistics office, confirming preliminary data. This follows a contraction in the final quarter of 2023.

Klaus Wohlrabe, head of surveys at the ifo institute, told Reuters that the economy might grow again in the second quarter. “The upswing remains a fragile little plant,” Wohlrabe said.

However, Commerzbank’s chief economist Joerg Kraemer provided a more cautious outlook, suggesting that the economy is set to stagnate in the second quarter. “Gross domestic product should start to rise from the middle of the year,” he said. “However, the upward trend is likely to be moderate, partly because the German government is not taking decisive action to counter the erosion of the country’s quality as a business location that has been observed for many years,” Kraemer added.

The ifo institute’s report underscores the mixed performance across different sectors, indicating a slow and uneven recovery for Germany’s economy.