German business sentiment picks up in May thanks to buoyant service sector

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BERLIN — German business morale rose unexpectedly in May as a recovery in the service sector in Europe’s largest economy helped offset the impact of high inflation, supply chain issues and the war in Ukraine, according to a survey published on Monday.

The Ifo institute said its peak business index rose to 93.0 in May after a reading of 91.9 in April, revised slightly higher from 91.8.

A Reuters poll of analysts had indicated a May reading of 91.4.

The Ifo said in its statement that there were “currently no observable signs of a recession”.

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“The German economy is showing resilience,” Ifo economist Klaus Wohlrabe told Reuters, adding that service providers were benefiting from the easing of COVID-19-related restrictions – particularly in the tourism sector. and the hotel industry.

The situation in the industrial sector was more difficult.

“There are no signs of any easing of supply bottlenecks here,” Wohlrabe said, adding that demand for industrial products has fallen. Overall, business price expectations had declined. “Price increases remain on the agenda, however,” Wohlrabe said.

Data released last Friday showed German producer prices saw their biggest annual rise on record in April – up 33.5% on the year – as the war in Ukraine sends the cost skyrocketing. energy for German industry.

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Inflation and supply bottlenecks threatened a post-pandemic consumer boom, said Alexander Krueger of private bank Hauck Aufhaeuser Lampe, adding: “The question mark over a stronger recovery in the economy in the second half of 2022 is growing”.

German Finance Minister Christian Lindner, who hosted a meeting of the Group of Seven economic powers last week, said inflation must return to 2% quickly and central banks had a “great responsibility” to help to master it within the G7.

Volkswagen, Europe’s biggest automaker, stuck to its 2022 outlook earlier this month, avoiding supply chain disruptions caused by the war in Ukraine and the pandemic by relying on its network of global production. (Reporting by Miranda Murray and Rachel More Editing by Paul Carrel, Kirsten Donovan)

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