FX.co ★ German Ifo Business Confidence Near 1-Year High

Germany's business confidence has notably improved for the third consecutive month as of April, reaching its highest level in nearly a year, mainly due to a significant boost in the service sector's confidence.

According to the ifo Institute's monthly survey results published in April, the business confidence index has risen from 87.9 in March to 89.4 in April, marking its highest point since May 2023 when the score was 91.4. This rise was more significant than economists' forecasted increase to 88.9.

The survey results revealed an overall increase in company satisfaction about their present situation, and their future expectations were also more positive. The index for the current situation rose to a five-month high of 88.9 from 88.1 in March, surpassing the forecast of a modest increase to 88.7. Similarly, the expectations indicator scored 89.9, up from 87.7 in the previous month, better than the anticipated score of 88.9.

ifo Institute President, Clemens Fuest, explained that the economy's stabilization was mainly due to the service providers.

However, the manufacturing sector perceived their current circumstances as unfavorable, despite an increase in the business climate index spurred by less pessimistic expectations. A further decrease in manufacturers' order books and no predicted increase in production levels was uncovered in the data.

The survey showed that business sentiment in the service sector improved substantially in April, especially in the current situation, while future expectations remained mostly unchanged. Although business expectations improved considerably, they stayed mainly pessimistic, and companies were slightly less content with their current business. In the trading sector, the business climate index noticed a rise too. Construction businesses reported a better business climate for three consecutive months, due to a significant reduction in pessimistic future expectations, despite a slightly negative current situation assessment.

However, despite the improvement in economic indicators, Capital Economics economist Franziska Palmas reminded that the possibility of a marginal contraction in GDP this year can't be entirely dismissed. She suggested that potential growth would be minimal due to stagnant real incomes, weak foreign demand, and firm fiscal policies.

ING economist, Carsten Brzeski, noted that the day's survey result offered renewed optimism for the German economy. He stated, "The cyclical trough is behind us, although this doesn't necessarily indicate that a powerful recovery is imminent, given the existing structural weaknesses."