In the third month after the start of the Russian invasion of Ukraine, the mood in the German boardrooms has improved.

The business climate index of the Munich Ifo Institute rose by 1.1 points to 93 points compared to the previous month, as the institute announced on Monday.

It is the second increase in a row.

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 from 98.5 points to 90.8 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.

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In May, too, companies remained skeptical about the coming six months.

Their expectations hardly changed.

However, companies were noticeably more satisfied with their current business than in the previous month.

The situation component of the index rose from 97.3 points to 99.5 points.

“The German economy is proving to be robust despite inflation concerns, material shortages and the war in Ukraine.

There are currently no signs of a recession,” said Ifo President Clemens Fuest.

Sentiment improved across all sectors.

However, the increase in the index was largely due to a significantly better assessment of the current business situation in the service sector, which is benefiting greatly from the easing of corona restrictions.

The sub-indicator rose as strongly as it did in June 2021. Sentiment in industry also eased slightly.

"But companies are still noticeably skeptical about the coming months," said Fuest.

In addition, demand has suffered a significant dampening and incoming orders have weakened.

Economists continue to see risks

Despite the rise in the barometer, economists remain rather pessimistic.

"The zero-corona policy in China and war-related delivery problems are likely to continue to slow down supplies for German industry from abroad," said Commerzbank chief economist Jörg Krämer.

The economic risks remained pointing to the downside.

According to a survey by the Ifo Institute in April, 75 percent of companies complained about bottlenecks and problems with the procurement of preliminary products and raw materials - and the orders are piling up.

In March 2022, the order range was 8 months and thus reached a new high since the beginning of the time series in 2015, as the Federal Statistical Office announced on Friday.

The range indicates how many months the companies could produce with constant sales without new orders,

Alexander Krüger, chief economist at the private bank Hauck Aufhäuser Lampe, expects that the “massive shortage of materials” will “put the production on the chain for a long time to come”.

"Index rise or not: the mood of companies remains bad," he commented.

The post-corona consumption boom is also looking bad because of the sharp rise in inflation and supply bottlenecks.

Deka Bank economist Andreas Scheuerle also sees this danger.

"The economy is still going thanks to the catch-up effects after the end of the corona restrictions," he said.

This is currently overriding problems elsewhere.

"But this help ebbs away over time and consumer incomes continue to erode as a result of inflation," says Scheuerle.

KfW chief economist Fritzi Köhler-Geib does not expect a rapid catch-up movement like that from early summer 2020 in view of the strain on purchasing power and the supply bottlenecks.

"For the rest of the year, I therefore expect only moderately positive quarterly growth rates, and stagflationary tendencies are also quite possible," she said.