After a six-month increase, German business confidence takes a downhill turn

Germany’s business confidence has fallen for the first time after its previous six-month rise, according to a May 24, 2023, carefully monitored study. The country’s inflation has been easing slowly while interest rates continue to rise, causing Germany’s monthly index to drop to 91.7 points, down from May’s 93.4 points. The manufacturing sector bore the brunt of the decline in confidence, partly due to expectations rising since war broke out in Ukraine.

The German economy stagnated in the first quarter of 2023, with preliminary figures indicating a 0.5% contraction in the final quarter of 2022. Inflation in Germany fell slightly to 7.2% in the same period, compared to 7.4% in March. The European Central Bank’s repeated interest rate hikes aim to bring inflation closer to its target of 2% across the eurozone.

Chief economist Timo Klein of S&P Global Market Intelligence attributes the downturn in Germany’s business confidence to persisting core inflation and ECB’s resulting tightening of monetary policy. The IFO study is based on feedback from around 9,000 managers from various business areas.

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