German business optimism fell in May, adding to indicators that Europe’s largest economy may record slower growth in the second quarter.
The Ifo Institute’s business climate index, which relies on responses from 7,000 executives, declined to 110.4 this month from April’s reading of 111.2. This exceeded the average forecast of 110.9 in a Bloomberg survey of economists.
“It seems as if the German business climate has reached a plateau, as further impetus for growth is missing,” revealed Johannes Gareis, a Frankfurt-based economist at Natixis. “Despite this setback, there is no reason to start worrying about the German economic outlook.”
Germany is expected to lead recovery in the eurozone, which has been grappling with high unemployment rates and persistent deflation. Today’s report indicated that domestic demand was the key driver of the economy in the first three months of 2014.
The German economy rose 0.8 percent in January to March after the unusually mild winter spurred private spending and construction sector, reported the Federal Statistics Office on Friday. The data also showed that imports grew faster than exports.
Most analysts speculate that European Central Bank will ease its monetary policy when it meets next month to combat the risk of deflation. Some of the measures it may roll out range from asset purchases to negative deposit rates. Inflation in the euro area has remained less than ECB’s target of just below 2 percent since October.
When the ECB officials last met on May 8, the maintained the benchmark interest rate at 0.25 percent while the deposit rate remained zero. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.