German Business Outlook Tumbles as Manufacturing Slump Deepens

(Bloomberg) -- German companies’ business outlook tumbled to the lowest in a decade, adding to signs that Europe’s largest economy is getting dangerously close to a recession.

Manufacturing is mired in a deepening slump as trade tensions weigh on exports and auto factories struggle to cope with changes in the industry. Water levels on the Rhine river, one of the country’s main transport rivers, are again precariously low, and some of Germany’s bluechip companies have issued profit warnings. The Bundesbank says the economy probably shrank in the second quarter.

An Ifo gauge of business expectations fell to 92.2 in July, the lowest level since 2009. Firms’ assessment of current conditions also declined, leaving a composite index at 95.7, below even the most pessimistic forecast in a Bloomberg survey of economists.

The euro was trading down 0.1 percent at $1.1132 at 10:33 a.m. Frankfurt time. Stocks and bonds fell slightly after the report.

“What’s worrying is that the weakness in manufacturing continues but it’s now spreading so we see numbers worsening in the services sector,” Ifo President Clemens Fuest said in a Bloomberg Television interview. “It’s certainly not getting better,” and “it’s starting to affect the labor market.”

The figures follow on the heels of a similarly pessimistic report on Wednesday that showed manufacturing contracting sharply. Private consumption has held strong so far, but may prove vulnerable should Germany’s record-low unemployment start to rise from a record low, as predicted by the Bundesbank.

So far, Germany’s government has given no indication that it is planning to bolster the economy with some additional fiscal stimulus -- despite free money available on credit markets. Chancellor Angela Merkel takes the approach that a slowdown after a period of historic growth is normal, and the headwinds will ease when U.S. President Donald Trump’s trade wars get resolved.

What Bloomberg’s Economists Say...

“Germany’s economy looks to have had a poor second quarter and now there’s mounting evidence that the weakness is persisting into the second half.”
--Jamie Murray and Maeva Cousin.
Read the full GERMANY REACT

The sorry state is likely to be part of the discussions at the European Central Bank’s Governing Council meeting on Thursday, where policy makers will decide whether the similarly beleaguered euro zone needs another dose of monetary stimulus.

They’re expected to lay the ground for an interest-rate cut that could come in September. Their discussion may also touch on restarting asset purchases. The central bank will announce its decision at 1:45 p.m. Frankfurt time.

--With assistance from Kristian Siedenburg, Catarina Saraiva, Harumi Ichikura and Piotr Skolimowski.

To contact the reporter on this story: Kristie Pladson in Frankfurt at kpladson@bloomberg.net

To contact the editors responsible for this story: Tom Contiliano at tcontiliano@bloomberg.net, Jana Randow, Paul Gordon

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