Ifo – Do higher tariffs really not matter?
The fifth consecutive increase in the Ifo business climate index (87.5 after 86.9) shows that German companies defied Trump's tariff shock also in May.
05/22/2025
The Ifo business climate increased for the fifth consecutive month in May – from 86.9 to 87.5. The rise largely met the expectations of the economists surveyed beforehand (consensus: 87.3; Commerzbank: 87.5). The increase was driven by better business expectations for the coming six months (88.9 after 87.4). In contrast, companies assessed the current business situation somewhat worse (86.1 after 86.4).
Better mood in export-oriented industries
Despite the wrangling over Trump's tariffs, business expectations have brightened significantly, particularly in the export-oriented manufacturing industry (from -16.8 to -9.7). German companies continue to shake off Trump's tariff shock. Apparently, the positive effects of the ECB's interest rate cuts outweigh the tariff discussions.
However, Trump's tariffs should notably dampen the economic upswing in the end. After all, German companies are likely to lose an estimated one-third of their US business in the medium term if the US permanently imposes a 15% tariff on goods from the EU. This is expected to dampen economic growth in Germany by an estimated 0.5 percentage points on average over the next two years. For the entire year 2025, we still expect only stagnation in the gross domestic product. The composite purchasing managers' index for German manufacturing and the service sector also advises caution, falling significantly from 50.5 to 48.6 points in May, contrary to expectations.
For full text see attached PDF-Version.
