German business morale worsens in May

German business sentiment fell more than expected in May, a key survey showed Wednesday, adding to fears that Europe’s biggest economy could be heading for a recession.

The Ifo institute’s monthly confidence barometer, based on a survey of about 9,000 companies, dropped to 91.7 points from 93.4 points in April.

“This marks the first decline after six increases in a row,” said Ifo president Clemens Fuest.

Analysts surveyed by FactSet had expected a reading of 93 points.

It is the latest in a series of gloomy economic data out of Germany in recent weeks, denting hopes of a quick rebound after gross domestic product shrank by 0.5 per cent in the final quarter of 2022 on the back of high energy prices.

Federal statistics agency Destatis will on Thursday reveal how the economy performed in the first quarter of 2023, after preliminary data suggested zero growth.

The Ifo survey showed that managers were now more pessimistic about their current business situation as well as expectations for the next six months, particularly in manufacturing and trade.

“The positive effect of easing supply chain disruptions and significantly lower wholesale prices on the energy markets is less significant than the burden of lost purchasing power and the restrictive monetary policy stance,” said KfW chief economist Fritzi Koehler-Geib.

“The outlook for economic growth in the further course of the year remains subdued,” she added.