German Ifo Business Sentiment Strengthens; Composite PMI Falls

(RTTNews) - German business confidence strengthened in May as companies became less concerned about uncertainties regarding trade tariffs, a closely watched survey showed Thursday.

The Purchasing Managers' survey compiled by S&P Global today showed that the German private sector activity contracted the most in five months in May due to a deepening downturn in the service sector. The business climate index rose to 87.5 in May from 86.9 in the previous month. The score was forecast to rise to 87.4.

Companies were less sceptical about expectations. However, current situation was assessed to be somewhat less favorable.

The current situation index dropped to 86.1 from 86.4 in April, while it was forecast to rise to 86.8. By contrast, the expectations index advanced more-than-expected to 88.9 in May from 87.4 in the prior month. The reading was seen at 88.0.

The recent sharp rise in uncertainty among companies eased somewhat, ifo President Clemens Fuest said. The German economy is slowly regaining its footing.

Rather than fearing the downsides from ongoing uncertainty and trade tensions, businesses focused on the bright side of what could happen under the new government, ING economist Carsten Brzeski said.

That said, the economist expects another year of stagnation, which would mark the first time ever for Germany to go through three straight years without growth.

In manufacturing, the ifo business climate index rose significantly in May, the survey showed. Companies revised up their expectations noticeably. They also assessed their current situation as somewhat better.

The business climate continued to improve in the service sector. This was due to improved expectations as the current situation was assessed somewhat less positively. In trade, business sentiment rose noticeably in May. Expectations in particular rose sharply in both wholesale and retail trade. Moreover, traders were more satisfied with their current situation.

In construction, the business climate improved for the fourth time in a row. Companies assessed their current situation more positively and expectations gradually became less pessimistic.

The PMI survey showed that the private sector shrank in May for the first time so far this year. The faltering performance was driven by a deepening down in service sector. On the other hand, manufacturing production grew for the third consecutive month.

The HCOB composite output index fell to a five-month low of 48.6 in May from 50.1 in April.

The services Purchasing Managers' Index hit a 30-month low of 47.2 in May, down from 49.0 in the previous month. At 48.8, the manufacturing PMI reached a 33-month high and up from 48.4 a month ago.