Volkswacht Bodensee - German business morale rises for first time since Iran war

The Ifo institute confidence barometer rose to 84.9 points from 84.5 in April, the first time it has gone up since the start of the conflict.

Analysts had expected a slight decrease.

"The German economy is stabilising for the time being, although situation remains fragile," said Clemens Fuest, Ifo's president.

The survey had slumped in the months following the start of the US-Israeli war against Iran at the end of February.

The energy shock triggered by the near total closure of the Strait of Hormuz is a heavy blow for Germany's power-hungry manufacturers, and dimmed hopes of a strong recovery this year for the long-struggling economy.

But a massive ramp-up in defence and infrastructure spending may be offsetting the conflict's impact and helping to bolster business morale, analysts said.

The latest Ifo survey, based on responses from around 9,000 businesses, showed that companies were more optimistic about both their current situation and future prospects.

Morale among companies in the manufacturing, services and trade sectors improved. But it fell slightly among construction companies.

Despite the slight increase, the survey remains at its lowest level since late 2024.

LBBW bank analyst Jens-Oliver Niklasch said Friday's survey was a "small positive surprise".

Companies had a lot of orders on their books, he noted, adding this would "be a good basis for a recovery if, for example, energy prices were to fall or the general mood were to improve".

In other positive news, consumer sentiment improved modestly heading into May, according to another survey.

The forward-looking indicator, published by pollsters GfK and the Nuremberg Institute for Market Decisions (NIM), rose 3.3 points to minus 29.8 -- although it remains at low levels overall.

Meanwhile the statistics agency said the economy expanded 0.3 percent in the first quarter, confirming previously released data, on the back of strong exports.

F.Mueller--VB