The five-months downward trend of the ifo Business Climate Index came to a halt in May for the time being, but this did not leave any impression on manufacturing companies, with sentiment further deteriorating here for the fourth time in a row. The decline is solely due to the business expectations for the next six months, with expectations lower than they have been since August 2016.
The current slump in business expectations is particularly attributable to the deterioration in export prospects. In addition to international trade disputes, the negative impact of the United States’ decision to scrap the Iran Agreement can also be seen here. The full implications of this move for German companies is still difficult to predict at the moment, but Saudi Arabia is already planning to restrict the awarding of government contracts to German companies.
This is of course also finding reflection in the export expectations of German industrial companies. Export expectations for the next three months have fallen from 15.6 points in April to currently 13.6 points. This is the sixth decline in a row and the worst reading since the beginning of last year. Although a slight majority of companies from the manufacturing sector evidently still expect their export activity to pick up, optimism has cooled off noticeably, particularly in the automotive industry. After all the United States were this sector’s most important buyer country in 2017.