German corporate sentiment rose for a second straight month in May, fuelling hopes that Europe's largest economy is exiting a record slump, but current business conditions remain very weak, a survey showed today.
The Munich-based Ifo institute's business climate index, based on a monthly poll of some 7,000 firms, rose by less than expected to 84.2 from 83.7 in April.
An Ifo gauge of business expectations rose for the fifth month in a row, though a separate measure of current conditions slumped to its lowest level since German reunification in 1990.
Markets reacted with disappointment to the below-forecast Ifo figure. The euro fell to its lowest level of the day against the dollar, while European shares extended losses.
Analysts were, however, cautiously optimistic.
“This is a further clear signal that the German economy's tailspin has ended," said Commerzbank economist Joerg Kraemer.
“The recession has lost its velocity. It could even be over by the autumn. But on the other hand no one should overestimate the strength of the upturn," he added.
Forward-looking indicators in recent weeks have suggested the pace of the downturn -which the government has forecast will cause the economy to shrink by six percent this year - has eased since a record contraction in the first quarter.
The ZEW think tank's gauge of analyst and investor sentiment hit its highest level in nearly three years this month, while a flash estimate for Markit's composite purchasing managers index (PMI) for Germany rose to a seven-month high.
Uwe Angenendt, an economist at BHF-BANK, said the picture remained unstable, so that it was still hard to say what sort of an improvement was taking shape in Germany.
“It can't be ruled out that we're seeing an expectations bubble, given the dimension of the current crisis,” he said.
Reuters