German business sentiment improved more than expected in April, according to the Ifo institute. The business climate index rose to 89.4, surpassing the forecasted 88.8 and higher than the revised reading of 87.9 in March. The improvement in sentiment is attributed to service providers, who expressed greater satisfaction with their current business and brighter expectations. This positive development in business sentiment is a welcome sign for Germany's economy, which was the weakest among its peers last year due to high energy costs, weak global orders, and record-high interest rates. While inflation is expected to ease this year, growth is still forecasted to remain relatively weak.
In addition to the improvement in business sentiment, the German GfK Consumer Climate Indicator also showed positive signs. The indicator increased from -27.3 to -24.2 for May, indicating a slight improvement in consumer confidence. However, the willingness to buy remained low, highlighting ongoing uncertainty about the labor market and the economy. Despite a marked improvement in income expectations, the willingness to save climbed higher. The sub-components of the survey supported investor expectations of a June ECB rate cut.
The positive news from both the business and consumer sectors has had an impact on the EUR/USD exchange rate. The EUR/USD fell to a low of $1.07114 before rising to a high of $1.07131 in response to the GfK Consumer Confidence numbers. Investors are also keeping an eye on US GDP numbers for Q1 2024 and weekly jobless claims figures, as economists forecast the US economy to grow by 2.5% in Q1 2024 after expanding by 3.4% in Q4 2023 [5aa00b4e].
However, the Eurozone Economic Sentiment Indicator unexpectedly fell from 96.3 to 95.6 in April, according to the latest report. This decline in economic sentiment adds to concerns about the Eurozone's recovery. While consumer confidence improved, inflation expectations and Services Sentiment weakened. This supports investor bets on a June ECB rate cut. Economists are now awaiting inflation figures from Germany, ECB commentary, and Dallas Fed Manufacturing Index numbers to gain further insights into the Eurozone's economic outlook [64b2e4cb].
Investor confidence in Germany’s economy improved less than anticipated, with the ZEW institute's expectations gauge rising to 47.5 in June from 47.1 in May, falling short of the forecasted 50. A measure of current conditions fell slightly. The manufacturing sector has been a weak spot in the German economy, and there are indications that the moderate recovery is coming to an end. The Bundesbank forecasts the German economy to slowly gain momentum in 2024, with real GDP increasing by 0.3% this year and growth accelerating to 1.1% in 2025 and 1.4% in 2026. However, some economists argue that a renewed phase of stagnation is imminent. Industry data in April suggested a poor start to the second quarter [9cd6fd64].
Germans are losing confidence in the prospects of a swift economic recovery in Europe’s largest economy after a shock jump in inflation, according to a survey by pollsters GfK and the Nuremberg Institute for Market Decisions (NIM). The survey showed that hopes for a rapid economic recovery in the course of this year were dampened in June, with the economic indicator falling to 2.5 points after four consecutive increases. German inflation increased to 2.4% in May from 2.2% in the previous two months. The survey also revealed that German households are spending less and saving more after the rise in inflation, with the indicator for willingness to save increasing. The survey found that people were more downbeat about their income prospects and the economic outlook, and were less likely to make large purchases. The recent bickering over the 2025 budget by the German coalition government has also contributed to consumers' reluctance to spend. [6cd01126]