German business mood recovers further in May

The mood among German businesses improved in May, a key survey published Monday showed, as Europe’s largest economy weathered the first impacts of the Russian invasion of Ukraine.

“The German economy has proven itself resilient in the face of inflation concerns, material bottlenecks, and the war in Ukraine,” said Clemens Fuest, president of the Ifo think tank.

The closely watched index rose to 93 points from 91.9 points in April, after plunging in March following the Russian invasion of Ukraine.

Companies were more positive about the current business conditions, with the indicator rising to 99.5 points from 97.3 points.

By contrast, the outlook for the economy remained shrouded in doubt, with businesses’ expectations for the future only rising marginally to 86.9 points from 86.8 points.

High levels of inflation have unsettled businesses, with consumer prices rising at a rate of 7.4 percent in Germany in April.

The surge has been driven by the rising price of energy following the outbreak of the war in Ukraine.

Germany, like many European countries, is highly reliant on Russian imports to meet its energy needs, particularly for deliveries of natural gas.

Further limits to supply or a complete stop could have severe consequences for industry, potentially bringing production lines to a stop.

The German business mood was “much more stable since the Russian invasion of Ukraine” than following the start of the coronavirus pandemic, according to Fritzi Koehler-Geib, chief economist at public lender KfW.

But a significant improvement was “out of sight”, she said, with energy prices set to remain high and strict coronavirus lockdowns in China causing “repeated disruptions in global supply chains”.