Recently, we've noted that investors and purchasing managers in Germany have begun to lower their expectations for the growth of the economy over the next six months. It appears that it is not so much that they expect a sharp fall in demand as they expect that the current level of activity is close to capacity. The ZEW report of German investors' opinion saw a significant decline in its headline series--expectations six months ahead--from 7.6% balance of opinion in April to 3.1% in May, but also a significant rise in the balance of opinion on current conditions. Markit Economics' Purchasing Managers Survey has shown a declining trend in its composite series for output in Germany since February. The ZEW headline series and Germany's PMI for manufacturing are shown in the first chart.

Today, the IFO Institute for Economic Research released the results of its survey of German businessmen. Their views appear to be close to those of the investors and purchasing mangers. The headline series, Business Climate, at 20.6%, was barely unchanged from the 20.5% in April. A decline of 6 basis point in expectations for the next six months from a balance of opinion of 11.7% in April to 11.1% in May was offset by an 8 basis point increase the balance of opinion on the Business Situation. Like the investors, the businessmen increased their appraisal of the current business situation and lowered their expectations for the next six months. The IFO" Business Climate, Business Situation and Expectations are shown in the second chart.

The business climates for manufacturing and wholesale trade were less favorable, that for construction improved slightly. The big surprise was a rise in the balance of opinion on the business climate for retail trade. It rose from 9.6% in April to 15.2% in May. The Business Climate for the major industries is shown in the third chart.

Finally we compare the purchasing managers and the businessmen in the service industry in the fourth chart. The IFO non seasonally adjusted data on the service industry is compared with the PMI Flash estimates of the service business activity. Both show declines in recent months.