Business Climate Index recovers despite downward expectations

Sentiment in the German economy recovered slightly in May after slumps in previous months, bucking predictions for a downturn, according to the ifo Business Climate Index released on Friday. 

The index rose by 0.4 points to 84.9 points, the Munich-based research institute said. A key factor was a marked improvement in services.

Analysts had expected a further setback and on average had forecast a fall to 84.2 points. Companies surveyed by the ifo Institute rated their current business situation and future expectations more positively. 

"The German economy is stabilizing for the time being, although the situation remains fragile,"  ifo President Clemens Fuest said in a statement about the monthly survey of 9,000 companies.

LBBW economist Jens-Oliver Niklasch assessed the brighter mood in a similar way. 

"This is a small positive surprise. The recent news flow actually offered little reason for confidence. Even so, a certain bottoming out now seems to be in sight," he said. Order books were at least high. "That would be a good basis for a recovery if, for example, energy prices fell or the general mood improved."

Economic forecasts for Germany lowered across the board

Commerzbank chief economist Jörg Krämer took a more critical view. "The slight rise in the ifo Business Climate Index only means that this important economic indicator has stabilized at a low level after two consecutive slumps. But the trend still clearly points downwards," he said. 

The Iran war and the high oil price have been  taking their toll on the German economy. With each additional day that the Strait of Hormuz remained closed, the economic risks increased.