Trade-War Risk Sees German Business Sentiment Resume Its Decline

(Bloomberg) -- German business confidence resumed its decline in June as trade risks intensified and economic data remained mixed.

The Ifo institute’s closely watched gauge has now fallen for six of the past seven months, and the latest drop comes as tensions pitting the U.S. against China and Europe escalate. The index is now at its lowest in a year, while an expectations component is at the weakest in more than two years.

Trade-War Risk Sees German Business Sentiment Resume Its Decline

The latest reading, while at least in line with economist forecasts, is part of a run of poor economic news in the euro area. Consumer confidence in the region fell this month, and a more detailed sentiment report due Thursday will be examined for clues on the economy’s direction in the second half of the year.

DayDataSurveyPrior
WednesdayFrench consumer confidence (June)100100
Italian manufacturing sentiment (June)107107.7
ThursdayEuro-area economic confidence (June)112112.5 
FridayEuro-area inflation (June)2%1.9%
German unemployment rate (June)5.2%5.2%

In a break with the recent pattern, there were some upbeat figures from the region last week, when Purchasing Managers Indexes came in stronger than forecast. Still, the growth was led by services, with manufacturing growth continuing to slow.

In Germany, Europe’s biggest economy, factory momentum has cooled throughout 2018 so far, and U.S. trade protectionism is threatening to further damp output. There’s also the potential for political upheaval within Germany, where Chancellor Angela Merkel is facing mutiny by her coalition partners over immigration.

Read more on trade wars:

European Central Bank officials flagged tariffs as one of the key risks to the euro-area economy at their meeting this month, even before U.S. President Donald Trump threatened a 20 percent levy on all cars imported from the European Union. That would hurt Germany’s auto industry, and shares of carmakers BMW AG and Volkswagen AG have dropped this month.

Joerg Kraemer, chief economist at Commerzbank, said that with the trade-war risk, weaker business sentiment suggests “not only a short dip in growth, but an intermediate downswing that should last until the end of this year.” His forecast for 2 percent economic growth this year is subject to “downside risks.”

Economists surveyed by Bloomberg lowered their 2018 projection to 2.1 percent from 2.3 percent this month.

©2018 Bloomberg L.P.