German Business Confidence Slips as Concerns Over Trade Grow

(Bloomberg) -- German business confidence slid for a second month in July as companies grew increasingly nervous about exports amid escalating trade tensions between Europe and the U.S.

The Ifo institute’s closely watched gauge dropped to 101.7 from 101.8 in June. That’s the lowest since March 2017. The reading was above the median estimate by economists for a decline to 101.5.

German Business Confidence Slips as Concerns Over Trade Grow

The report comes hours before the Europe Union makes a last-ditch attempt to convince U.S. President Donald Trump that import tariffs on cars will harm both economies. EU Commission President Jean-Claude Juncker is due to meet Trump in Washington on Wednesday, after finance chiefs from the Group of 20 nations warned over the weekend that trade tensions are jeopardizing global growth.

Germany’s economy is particularly exposed to the latest threat because of the size of its auto industry. An earlier introduction of levies on steel and aluminum by the U.S. triggered counter measures by Europe and China.

German automaker Porsche said earlier this month it is monitoring the discussion about car tariffs “very closely” and must take it seriously. The U.S. is the company’s second-biggest market after China but it doesn’t produce any vehicles there.

Growth Momentum

Trade tensions are likely to feature heavily in the European Central Bank’s policy meeting on Thursday. The Governing Council has announced its intention to end net asset purchases this year, but says that move is dependent on incoming economic data.

President Mario Draghi said this month that the euro-area economy is strong enough to weather a gradual withdrawal of stimulus. In Germany, the Bundesbank predicts growth gained momentum in the second quarter, with manufacturing and private consumption acting as important drivers of the upswing as risks surrounding the trade outlook increase.

“Export-dependent manufacturing sentiment declined markedly after more stable readings in the past few months,” Oliver Rakau, chief German economist at Oxford Economics in Frankfurt. Yet, improving sentiment in services and construction suggests “the domestic economy is not yet succumbing to external threats as the booming labor market shelters the economy.”

Ifo’s measure of current conditions rose to 105.3 from a revised 105.2. A gauge of expectations fell to 98.2 from a revised 98.5.

©2018 Bloomberg L.P.