Ifo's May survey was a good deal weaker than the market consensus as a sharp fall in business expectations was compounded by a smaller decline in current conditions. Overall business sentiment fell 1.7 points from a weaker revised April level to 91.7, its first decline since last October and a 3-month low.

Current conditions were down 0.3 points at 94.8, their third fall in the last four months and their weakest reading since February. Expectations slumped 3.1 points to 88.6, their first drop since September but also their steepest since that month. This was their worst outturn since January.

At a sector level, sentiment deteriorated across the board, notably in manufacturing (minus 0.3 after 6.3) and trade (minus 19.1 after minus 10.7). Construction (minus 18.2 after minus 16.6) also lost ground while services (6.8 after 6.9) were broadly flat.

Today's very mixed results mirror the flash PMI report and so emphasise the current very lopsided nature of the German economy. They also put the German ECDI at minus 10 and the ECDI-P at minus 23. Economic activity in general is falling short of market expectations again.

The business climate index is not expected to extend its long run of improvement, easing slightly to 93.1 in May from April's 93.6.

Ifo is an acronym from Information and Forschung (research). Published by Munich's Ifo Institute, the Business Climate Index is closely watched as an early indicator of morale in German industry. In addition to overall gauge of sentiment, data are provided on its two components, current conditions and expectations. As a forward looking indicator, the latter is normally seen as the more important. Ifo surveys more than 9,000 enterprises in manufacturing, services, construction, wholesaling and retailing and a separate estimate of sector confidence is supplied for each.

The headline index has a good correlation with developments in overall GDP and so has a major influence in shaping views on how the national economy is performing. The main focus is the expectations index.