German Ifo Business Confidence Improves In May

Germany’s business confidence improved in May driven by modest expectations of an economic revival, thanks to partial withdrawal of lockdown restrictions that were imposed to slow the spread of the coronavirus, or Covid-19.

The ifo business confidence index climbed to 79.5 from a record low 74.2 in April, which was revised from 74.3, survey results from ifo Institute showed Monday. Economists had forecast a score of 78.3.

Sentiment among German companies has recovered somewhat after a catastrophic few months, ifo President Clemens Fuest, said. The gradual easing of the lockdown offers a glimmer of hope, said.

Although companies assessed their current situation as slightly worse, their expectations for months ahead improved considerably. However, industrial companies are still a long way from optimism.

The current conditions index dropped unexpectedly to 78.9 from 79.4 in April. Economists had expected the score to rise to 80 from April’s initial estimate of 79.5.

Meanwhile, the expectations measure jumped more-than-expected to 80.1 from 69.4 a month ago. The expected reading was 75.

In manufacturing, the business climate index rose appreciably in May. However, this was due only to companies’ much improved expectations.

Similarly, driven by expectations, the business climate in the service sector recovered notably from its historic low in April.

In trade, business climate rose substantially as there was a tangible recovery both in companies’ assessments of the current situation and in their expectations.

In construction, the business climate index rose for the first time in May after seven consecutive months of falls driven by improvement in expectations.

The Ifo index adds to evidence that the worst should be behind us, Carsten Brzeski, an ING economist said.

Nonetheless, even with more gradual lifting of the lockdown measures and no second wave of the virus, the German economy is unlikely to return to its pre-crisis level before 2022, the economist added.

Data released earlier in the day showed that the German economy contracted 2.2 percent in the first quarter, the fastest pace since the global financial crisis, as initially estimated, due to the coronavirus pandemic.

The impact of the pandemic was quite serious during the first quarter despite the spread of coronavirus did not have a major effect in January and February.

GDP had dropped 0.1 percent in the fourth quarter of 2019. Two consecutive quarters of contraction indicates that the largest euro area economy entered a technical recession.

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