The business climate index of the Munich Ifo Institute rose by one point to 91.8 points, as the institute announced on Monday.

In March, the barometer, which is based on the monthly survey of around 9,000 companies and is considered the most important leading indicator for the German economy, fell by 7.7 points.

The reason for this was a historic slump in expectations, which even exceeded the decline when the corona crisis broke out in March 2020.

Svea Junge

Editor in Business.

  • Follow I follow

In April, companies were slightly less pessimistic about their outlook for the next six months.

They also assessed their current situation a little better.

"After the initial shock of the Russian attack, the German economy is showing resilience," said Ifo President Clemens-Fuest.

The manufacturing sub-index rose again after last month's crash.

Sentiment also improved “noticeably” in the service sector.

The transport and logistics sector in particular was able to recover from the slump in the previous month.

"In the hospitality industry, the business climate improved significantly against the background of the easing corona situation," explained Fuest.

Industrial production is likely to fall

The sub-indices for trade and construction, on the other hand, continued to fall.

In the construction industry, the business climate fell to its lowest level since May 2010, and company expectations were more pessimistic than at any time since reunification.

"Especially major material bottlenecks are a burden on business," says Fuest.

Economists assessed the increase in the important barometer cautiously.

"The first war shock seems to have abated somewhat, but in view of the large number of existing risks it seems too early to speak of the beginning of a trend reversal," said Elmar Völker from Landesbank Baden-Württemberg.

Alexander Krüger, chief economist at Bankhaus Hauck Aufhäuser Lampe, also warned: “The general weather situation is no different than a month ago due to the Ukraine war.” Global delivery logistics will continue to slow down significantly – especially due to the lockdowns in China.

"The comeback of production in the past few months is therefore on the verge of an end".

That's how Commerzbank chief economist Jörg Krämer sees it.

The surprising rise in the Ifo index does little to change the fact that companies are concerned about the future because of the war in Ukraine and a possible energy embargo.

He expects industrial production to fall in the second quarter.

"That's why the gross domestic product will probably only stagnate in the second quarter despite the easing of the corona restrictions." The German Bundesbank is already expecting the German economy to stagnate in the first quarter, as the central bankers explained in their monthly report published on Friday.

The Purchasing Managers' Index from S&P Global (formerly Markit) for Germany, which was also published on Friday, fell by 0.6 points to 54.5 points in April, but was still well above the growth limit of 50 points.

The barometer for the euro area surprisingly climbed by 0.9 points to 55.8 points and was higher than it had been for more than six months.

The gap between industry and service providers is also reflected in the survey results from S&P Global.

While the service sector is benefiting from the declining corona restrictions and the associated catch-up effects, industry is suffering more severely from the consequences of the war.

At 47.4 points, the sub-index for German industrial production slipped into the contraction zone for the first time since June 2020.

Companies are planning price increases

S&P Global economist Phil Smith warned that the resurgence of the service sector is an important pillar of the economy for the moment.

"However, the end of most restrictions and the associated upswing should only stimulate growth temporarily," he expects.

In addition, it cannot be ruled out that a prolonged downturn in industry will also spread to the service sector.

In addition, the purchase and sale prices for goods and services rose at record speed.

Companies are increasingly trying to offset rising energy, material and labor costs, Smith said.

The cross-sector price increase indicates that "inflation will remain at historically high levels, at least in the near future."

A survey by the Ifo Institute on behalf of the Foundation for Family Businesses, also published on Monday, shows that more and more companies are planning price increases in view of the rising energy prices.

According to this, 40 percent of the 1100 companies surveyed are already fully affected by the explosion in energy costs.

Since many companies have secured themselves through long-term supply contracts, the price increase does not have an immediate impact everywhere.

A quarter of the companies indicated that they expect the main burden from higher energy prices in the second half of this year.

Another quarter expects to do so in the next year.

Almost 90 percent of the companies surveyed said they would probably have to raise prices as a countermeasure.

At the same time, around 46 percent of companies want to scale back their investments.

However, only six percent of the companies believe that production stops or relocations of production sites abroad are likely.

According to the survey, 11 percent of companies are considering giving up energy-intensive business areas entirely;

14 percent are considering job cuts in Germany.

Keywords: