German investor confidence declines in July

FRANKFURTGerman investor confidence slipped to its lowest level since 2012 as a standoff on trade between the US and many of the world’s major economies cast a cloud over the latest improvement in economic data.

The ZEW Centre for European Economic Research in Mannheim said yesterday that its index of investor expectations fell to minus 24.7 in July from minus 16.1 in June, marking the fifth monthly decline this year. Economists in a Bloomberg survey predicted a drop to minus 18.9. The negative reading means that more of those investors surveyed saw a worsening of the outlook than forecast an improvement.

The downbeat assessment comes after more recent economic data from Germany suggested the economy is beginning to stabilise, with factory orders, industrial output, and service-sector activity all improving. However, there’s no ignoring the threats to the outlook, particularly the ramping up in protectionism that took another major step last week, when US tariffs on US$34 billion (RM136 billion) of Chinese imports came into force and China immediately retaliated.

“Fears over an escalation of the international trade war with the US have dampened the economic out look,” ZEW president Achim Wambach said in a statement. Positive news “have been greatly overshadowed by the anticipated negative effects on foreign trade”.

ZEW’s gauge of current conditions slipped to 72.4 from 80.6. A measure of expectations for the euro-area dropped to minus 18.7 from minus 12.6.

The International Monetary Fund warned last week that risks to Germany’s economic outlook are tilted to the downside, citing rising protectionist trends and geopolitical uncertainty. It predicts growth of 2.2% this year, down from 2.5% in 2017.

The Bundesbank is counting on the domestic economy to drive growth in the coming months. It sees private consumption as a main pillar of Germany’s continued upswing, reflecting rising employment and strong wage increases. Export growth is forecast to be less strong going forward.

German automakers are particularly vulnerable to increased trade protectionism. Executives from Volkswagen AG, Daimler AG and BMW AG have lobbied the Trump administration to refrain from slapping import tariffs on European cars, a step they argue would cause irreparable damage to business. — Bloomberg