Trade fears sap German business morale

[FRANKFURT] German business confidence dipped again in June, a closely watched survey said Monday, as fears of a damaging transatlantic trade war and political infighting darken the economic outlook.

The Munich-based Ifo economic institute's business climate index slumped to 101.8 points in June, from a slightly upwardly revised 102.3 in May.

Analysts surveyed by Factset had predicted an even steeper fall.

"The tailwind enjoyed by the German economy is calming down," Ifo president Clemens Fuest said in a statement.

Business leaders were less satisfied with their current business situation, the survey showed, while their expectations for the future were mixed.

The Ifo reading is the latest in a string of disappointing data for Europe's top economy that has fuelled concerns of a slowdown after a strong 2017.

The Ifo institute last week drastically slashed its German growth forecast for 2018 from 2.6 per cent to 1.8 per cent.

"The number of dark clouds in the German economic sky has clearly increased," said ING bank analyst Carsten Brzeski.

"The most threatening factors are gradually escalating trade tensions, higher oil prices and, very recently, turbulences in domestic politics."

June's reading was dragged lower by jitters among trade companies, whose outlook turned pessimistic for the first time since 2015, Ifo said.

German executives are bracing for the impact of a full-blown trade war with the United States after President Donald Trump slapped tariffs on metal imports from the European Union.

The EU hit back on Friday with duties on iconic US products like Levi's jeans and Harley-Davidson motorcycles.

In response, Mr Trump has threated tariffs on car imports, to the alarm of German automakers.

The US leader is also embroiled in a similar tit-for-tat row with China.

Closer to home, German companies are nervously following a showdown between Chancellor Angela Merkel and her interior minister over immigration.

If the rift is not resolved, it could topple Ms Merkel's coalition government after just over 100 days in office.

The Ifo reading is based on a survey of some 9,000 firms in manufacturing, trade, construction and the service industry, which are asked to give their assessments of the current business situation and their expectations for the next six months.

AFP