German business morale stagnates, denting recovery hopes

FRANKFURT — German business sentiment stagnated in May after several months of improvement, a survey showed Monday, denting hopes that Europe’s biggest economy is on course for a strong recovery.

The Ifo institute’s closely-watched confidence barometer, based on a survey of around 9,000 companies, came in at 89.3 points.

It was the same reading as in April, and lower than a forecast of 90.3 from analysts surveyed by financial data firm FactSet.

Before May, the survey had risen for three consecutive months, fueling hopes the economy would stage a strong rebound after shrinking last year as it faced myriad headwinds.

READ: German economy showing signs of recovery, experts say

Despite the unchanged reading, Ifo president Clemens Fuest struck an upbeat note.

“Germany’s economy is working its way out of the crisis step by step,” he said in a statement.

Companies were less satisfied with their current business situation but expectations improved, the survey showed.

‘Cold shower to optimists’

It pointed to improvements in the manufacturing, trade, and construction sectors but the picture in the service sector worsened.

ING economist Carsten Brzeski said the latest reading represented a “cold shower to optimists”.

It “suggests that the bottoming out of the German economy is not yet being followed by a strong recovery,” he said.

But Fritzi Koehler-Geib, chief economist at public lender KfW, said there was still a “little more confidence” in German companies than just a few months earlier.

READ: German business morale sinks to start new year

“Although the business climate stagnated in May, it remains at a significantly higher level than at the beginning of the year. All in all, the economic trough should be largely over.”

The German economy was hit hard after Russia’s invasion of Ukraine in 2022 sent energy costs soaring, with the crisis compounded by a manufacturing slowdown and weakness in key trading partners, particularly China.

Recovery hopes had been driven in recent months by a string of improving indicators. The German government also nudged up its 2024 growth forecast last month to 0.3 percent, from 0.2 percent previously.