Sentiment among German businesses improved slightly in May, but remains at a low level after declines in both March and April.
That is shown by the latest survey from Germany’s ifo Institute, where the Business Climate Index rose to 84.9 points from 84.5 points in April. The ifo index measures sentiment among German companies and is based on responses from around 9,000 firms about their current business situation and their expectations for the next six months. The index uses 2015 as its base year, with the average set at 100. A May reading of 84.9 therefore shows that the business climate remains weak, although companies overall are slightly less negative than they were a month earlier.
The May increase follows a clear decline during the spring. In February, the index stood at 88.5 points. It then fell to 86.3 points in March and declined further to 84.5 points in April. The May figure therefore recovers only a small part of the downturn seen in the previous months. The figures mainly suggest that the decline has been halted for the time being, rather than that the German economy is heading for a clear recovery.
Stabilisation
The same picture is reflected in the two components of the ifo index. Companies’ assessment of their current situation rose from 85.4 points in April to 86.1 points in May, while expectations for the coming months increased from 83.5 to 83.8 points. This means that companies have become slightly more positive about their current business situation and slightly less pessimistic about the future. However, the expectations index remains well below its February level of 90.3 points, showing that uncertainty continues to weigh heavily.
- The German economy is stabilising for the time being, although the situation remains fragile, says ifo President Clemens Fuest.
The improvement is not evenly spread across sectors. The service sector is providing the clearest positive momentum, with the balance rising from -11.0 in April to -6.9 in May. A negative balance means that negative assessments still outnumber positive ones among companies, but when the figure becomes less negative, it indicates an improvement. According to ifo, expectations in the service sector in particular have recovered after declining in the previous two months, while companies also assess their current situation slightly more favourably.
Modest improvement
In manufacturing, the improvement is more subdued. Here, the balance rose from -15.4 in April to -15.0 in May. According to ifo, this is because companies assess their current situation somewhat more favourably, while expectations continue to decline. At the same time, the number of new orders has fallen. Manufacturing therefore illustrates why the overall rise in the business climate should be read with caution: some companies view the present slightly more positively, but the signals for the coming months remain weak.
Trade also improved in May, but from a very low level. The balance rose from -32.6 in April to -30.0 in May. This shows that pessimism has eased slightly, but also that both wholesale and retail trade remain under heavy pressure. According to ifo, the situation remains difficult because consumer spending is still weak.
Construction is moving against the overall trend. Here, the business climate fell from -23.8 in April to -24.3 in May, as companies assessed their current situation more negatively.
