The gain is driven by a small improvement in business expectations. Assessing the current situation, the net balance of companies reporting an improvement remained broadly unchanged at 21.9. At the same time, the net balance of companies that are optimistic about their outlook rose to 10 percentage points, up 0.6 point. The intake of new orders is reported to be lower than last month. Likewise, production is reported to have declined in May compared to April.
Manufacturing companies continue to report higher stocks of finished products.
These factors all suggest that economic activity in the second quarter has slowed compared to the first quarter of this year. Among the forward looking expectations components, export expectations have been revised down sharply after stagnating last month. This suggests that German companies are starting to factor in the worsening of the Asian crisis. As a consequence, output plans have been revised down considerably. Firms that plan to produce more over the next three months now outnumber those who plan to produce less by only 7 percentage points.