The ifo Institute's survey showed that sentiment among the German companies deteriorated sharply in May amid a substantial determination in industry expectations and probably significantly fewer new orders as a result of the recent interest rate hikes and stubbornly high inflation.
According to the report, the Ifo business climate index fell to 91.7 from 93.4 in April (revised from 93.6). This was the first decline in seven months. Experts expected the index to fall only to 93.0.
The details of the report showed that the current situation sub-index fell to 88.6 (the lowest value since August 2020) from 93.1 in April (revised from 95.0). Economists had expected an increase to 94.8. Meanwhile, the gauge measuring companies' expectations for the coming months rose to 94.8 (the highest value since February 2022) from 91.7 in the previous month (revised from 92.2). Consensus estimates suggested a rise to 91.9.
Commenting on the data, the Ifo's President Clemens Fuest said that the German economy was heading towards stagnation in the second quarter. "The German economy is treading water. Strong collapse in expectations in industry is striking. Industry export expectations have fallen markedly. Rate hikes have appeared to dampen demand," Fuest added.