Germany’s business outlook improves in May – Ifo

Germany’s business outlook improved for the fourth consecutive month, signalling growing confidence in the country’s economic recovery for the remainder of the year, Bloomberg reported on Monday.

According to a survey by Ifo Institute, the expectations index rose to 90.4 from a revised 89.7 in the previous month, slightly below economists’ expectations. However, a measure of current conditions declined.

Ifo President Clemens Fuest stated that while companies expressed less satisfaction with their current business situation, their expectations for the future brightened.

He highlighted that the manufacturing, trade, and construction sectors are rebounding, albeit with a slight setback in the service sector. Fuest noted that Germany’s economy is gradually emerging from the crisis.

“The German economy is improving, but slowly,” Fuest told Bloomberg Television.

Despite avoiding a recession over the winter, Germany saw 0.2 per cent GDP growth in the first quarter, boosted by mild weather that stimulated construction activity. Other indicators also show momentum in various sectors, strengthening the recovery.

Private-sector activity expanded at the fastest pace in a year in May, with services leading the growth. Consumer spending is expected to drive the recovery further, supported by cooling inflation and robust wage increases. Negotiated pay surged by over 6 per cent in the first quarter, while inflation remained below 3 per cent in May.

The manufacturing sector, although still facing challenges, is showing signs of improvement, potentially benefiting from rising exports and lower interest rates.

However, the impact of lower rates may take time to materialise as central banks proceed cautiously. The European Central Bank is anticipated to announce its first rate cut in June, with uncertainty remaining regarding subsequent policy decisions.

ECB Chief Economist Philip Lane affirmed the intention to reduce borrowing costs next month but emphasised that policy would remain tight throughout the year, albeit with some room for adjustment within the restrictive framework.