German Business Sentiment Improves But Clouds Remain
German business morale improved in May, a key survey showed Thursday, but analysts warned it was too early to sound the all-clear for Europe’s struggling top economy.
The rise was driven above all by increasingly rosy expectations for the future.
Another month of growing confidence adds to the indicator’s resilient performance, with sentiment either rising or remaining stable in recent months even after US President Donald Trump announced massive tariffs in April, many of which have since been softened.
“The United States’ increased willingness to compromise is probably the reason behind improved expectations,” said Dirk Schumacher, economist at public lender KfW.
“Nevertheless, the situation is complex and US trade tariffs will most probably be higher than they were at the beginning of the year,” Schumacher said.
The “bright side of what could happen under the new German government” under Chancellor Friedrich Merz was also likely boosting sentiment, said economist Carsten Brzeski of Dutch bank ING.
Merz has pushed through plans to massively boost infrastructure and defence spending in a bid to get Germany’s economy back on its feet after two years of recession.
The government’s advisory council of economic experts warned Wednesday that the money could lead to hardly any additional growth if it were not spent wisely.
Echoing the message, Brzeski cautioned that much would depend on how the money was used and that the overall picture was highly uncertain.
“There are currently more unknowns than knowns for the German economy,” he said.
The German government recently slashed its growth forecast to zero percent for this year, warning of the impact of US tariffs on the country’s export-dependent economy.
