German business confidence unexpectedly jumps

German business sentiment unexpectedly strengthened in April, a closely-watched survey showed on Monday, despite the ongoing war in Ukraine.

The ifo Business Climate Index rose to 91.8 points in April, from 90.8 in March. The current situation index rose only marginally, to 97.2 from 97.1, but the expectations index – which tumbled last month to 84.9 from 98.7 in February – rose to 86.7.

Clemens Fuest, president of the ifo Institute, said: “After the initial shock of the Russian attack, the Germany economy has shown its resilience.”

Sentiment strengthened in both the manufacturing and service sector, with the hospitality industry in particular benefiting as the country recovered from the worst of the pandemic. The manufacturing business climate index strengthened to -1.0 from -3.6 a month earlier, while services rebounded to 5.4 from 0.8.

However, trade continued to soften, to -13.3 from -12.0, with expectations remaining “strongly pessimistic”. Construction also tumbled, to reach -20.0, its lowest level since May 2010.

Carsten Brzeski, global head of macro at ING, said the optimism felt “premature”.

He argued: “We remain very cautious. Supply chains are still disrupted due to the Shanghai lockdown and the war in Ukraine. Some might be disrupted for good. Elevated uncertainty and fear will weigh on both supply and demand in the coming months. Real disposable incomes of households will suffer, and companies will have increasing difficulties dealing with the costs of higher energy and commodity prices, putting corporate profit margins under pressure.

“As much as we welcome optimism, something doesn’t feel right about today’s ifo Index.”

The ifo Business Climate Index is based on around 9,000 monthly responses from German businesses.