German business climate remains unchanged in May – Ifo survey

German Ifo business climate index was unchanged at 89.3 in May and missed forecast at 90.4, adding to concerns about slowdown in the economic recovery in the Europe’s largest economy.

Weaker than expected numbers in Germany’s top leading indicator, signaled stagnation in a business morale and warn that recovery after a cyclical bottoming may take more time than anticipated and will progress at slower than expected pace.

Economists expect recovery to gain more momentum, though the process to show gradual improvement, as negative signals from weaker than expected business morale were partially offset by brighter business expectations.

German economy expanded by 0.2% in the first three months this year, driven by recovery in industrial, construction and trading sectors, after contracting in the fourth quarter of 2023.

Economist remain cautiously optimistic, though split in the view of economic performance in the second quarter of 2024, as some expect German economy to stagnate, while other see chance for further expansion, though do not expect significant improvement, as services sector recovery is still at very slow pace, which keeps the overall situation fragile.

The other limiting factor could be inflation, which is expected to remain in a downward trajectory in coming months, but strong warning comes from signals that many companies want to raise their prices in the next three months that may slow the process or spark fresh price pressures.

Also, unclear signals about the timing of the first ECB rate cut, which continues to strongly depend on inflation numbers, as well as economic data, contribute to the near-term outlook.