German business morale rebounds in May as corona restrictions are eased

People carry their shopping bags in downtown Hamburg

BERLIN (Reuters) - German business morale rebounded in May, a survey showed on Monday, recovering from its most dramatic fall on record the previous month as a gradual return to normal activity after weeks of curbs boosts expectations among companies.

The Ifo institute said its May survey showed that its business climate index rose to 79.5 from a downwardly revised 74.2 in April. A Reuters poll of economists had pointed to a reading of 78.3.

"The mood at German companies has recovered after the catastrophic previous month," Ifo President Clemens Fuest said in a statement. "The expectations for the coming months have improved significantly."

Lockdown measures introduced in mid-March pushed Europe's largest economy into a recession in the first quarter, when it contracted the most since 2009 and economists expect a bigger fall in output in the second quarter.

Ifo economist Klaus Wohlrabe said the institute expects a double-digit contraction in the second quarter and added that companies expect exports to fall less dramatically as economic activity resumes.

"The German economy is again seeing light at the end of the tunnel," he said. "But we are still far away from optimism."

The German economy contracted by 2.2% in the first quarter after a 0.1% contraction in the last three months of 2019 and the government expects national output to shrink by 6.3% this year, its deepest recession since World War Two.

Economists say a recovery to pre-coronavirus levels will come next year at the earliest.

"Reviving economic activity and returning optimism are highly welcome but are definitely no reason for complacency or even hubris," ING economist Carsten Brzeski wrote in a note.

He added: "Even in a more benign scenario, with more gradual lifting of the lockdown measures and no second wave of the virus, the German economy is unlikely to return to its pre-crisis level before 2022."


(Writing by Joseph Nasr; Editing by Michelle Martin)