German Business Morale Rises Against Odds Amid Tariff Tensions

German business morale improved in May according to the Ifo institute, exceeding expectations with a rise to 87.5. Despite U.S. tariffs, the manufacturing sector showed resilience. However, a separate survey indicated a contraction in business activity, casting doubt on future economic growth.

In May, the Ifo institute reported a slight improvement in German business morale, with a business climate index increase from 86.9 to 87.5. Analysts had anticipated a smaller rise to 87.4, reflecting greater optimism among German companies about their future prospects.

The boost in morale was particularly notable within the export-driven manufacturing sector, as stated by Commerzbank's chief economist, Joerg Kraemer. Despite potential threats from U.S. tariffs imposed by President Donald Trump, the industry continued to recover, marking the fifth consecutive rise in the Ifo business climate index.

However, challenges persist as a separate survey revealed a contraction in Germany's business activity due to declines in the service sector, overshadowing manufacturing gains. The government's recent economic forecast revision suggests stagnation, highlighting uncertainty in Germany's immediate economic outlook.

(With inputs from agencies.)