In May, German business confidence stagnated, a survey shows, with results falling short of expected improvements, suggesting economic recovery this year will proceed slowly.
The Ifo Institute stated that its business climate index remained at 89.3 in May, below the analysts' forecast of 90.4 in a Reuters poll.
Carsten Brzeski, head of global macro at ING, said: "The Ifo index, as Germany's most important leading indicator, indicates that a strong recovery will not automatically follow the cyclical bottoming out."
Looking ahead, due to strong wage growth driving a cautious recovery in private consumption, the economy should gradually gain more momentum, and the inventory cycle should gradually turn positive, Brzeski said.
However, this cyclical improvement does not mean that Germany's situation will suddenly become smooth sailing, economists concluded.
The Ifo survey showed that businesses' satisfaction with current conditions declined, but expectations for the future improved.
The Ifo Institute stated that industry, trade, and construction are recovering, while service providers are encountering setbacks.
The statistics office reported last Friday that Germany's economy grew by 0.2% in the first quarter of 2024, confirming the preliminary data. The GDP had shrunk in the last quarter of 2023.
Klaus Wohlrabe, head of the Ifo survey, told Reuters that the economy might grow again in the second quarter.
"The recovery remains a fragile little plant," Wohlrabe said.
According to Jörg Krämer, chief economist at Commerzbank (ETR), the German economy might stagnate in the second quarter.
He said GDP should start rising from mid-year.
"However, the upward trend might be moderate in part because the German government has not taken decisive action to address the observed decline in the quality of the national business environment over the years," Krämer said.
Despite expected continuous decline in inflation this year, Ifo's Wohlrabe noted that more companies plan to raise prices in the next three months.
The European Central Bank has almost committed to cutting interest rates for the eurozone on June 6, but policymakers will discuss the timeline for subsequent actions based on progress in consistently reducing inflation.
