IFO Survey Dips in May as Firms Brace for Weakening Demand

GERMANY MAY IFO BUSINESS CLIMATE 91.7 (FCST 93.0); APR 93.4r

GERMANY MAY IFO CURRENT COND 94.8 (FCST 94.7); APR 95.1r

GERMANY MAY IFO EXPECTATIONS 88.6 (FCST 91.6); APR 91.7r

• The Germany IFO survey was more downtrodden across the business climate, current and expectations indicators in May. The business climate index weakened by 1.7 points to 91.7, lower than the 93.0 expected, breaking a six-month streak of improvement.
• Current conditions were only marginally worse at 94.8 (down 0.3 points), whilst expectations dipped 3.1 points to 88.6 against consensus expectations of largely holding steady.
• Manufacturing confidence was significantly worse in May, with declining demand underpinning a fall in expectations, which was the steepest since the onset of the Ukraine war in March 2022.
• Trade sentiment declined sharply to near December levels, led by falling wholesale expectations.
• Services sentiment was largely unchanged, yet outlooks became more pessimistic indicating softening demand anticipated in months to come, which was echoed in yesterday's flash PMI.
• With the manufacturing PMI slipping further into contractionary territory and ZEW expectations taking another hit, the IFO survey adds to evidence that growth optimism is faltering.
• Final Q1 GDP data is due on Friday, likely to confirm that the eurozone’s largest economy stalled in Q1 at 0.0% q/q growth. A downside revision would see the German economy having dipped into a technical recession, following the -0.4% q/q Q4 contraction.