Germany's Ifo business sentiment unexpectedly rises in May
Germany's Ifo Institute index rose above expectations to 88.1 in May, reaching a two-year high. Although the manufacturing sub-index for industrial orders remained negative, a sharp recovery in service-sector business expectations may influence the ECB's rate debate.
The Munich-based Ifo Institute said that its May business climate index reached 88.1, beating the Reuters consensus of 87.3 and hitting a two-year high. The current-conditions component climbed to 86.4 from 85.7 in April, while the expectations component rose to 89.8 from 88.4. In a survey of 1,700 firms, the strongest improvement came from services and retail; in manufacturing, the order sub-index remained in negative territory at -27.4.
Ifo President Clemens Fuest told Investing.com Europe that 'Germany is signalling a gradual exit from technical recession, but fragility in manufacturing orders has not been resolved'. Read alongside Friday's PMI data from federal statistics agency Destatis, industry continues to defer investment while services gain support from domestic consumption. Ahead of the ECB's 5 June policy meeting, Bundesbank President Joachim Nagel said in a Saturday speech that 'an early rate cut should not be on the table'.
External demand remains the key risk for Germany. Under the impact of the new US tariff package, US export volumes from Mercedes-Benz, Volkswagen and BMW shrank 9.1% year on year, while sales to China rose 2.4% despite the Iran-linked energy crisis. ZEW Institute President Achim Wambach said 'German services may be the main driver of GDP growth into the second half of 2026'.
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