German biz confidence drops on gloomy outlook

By BLOOMBERG

FRANKFURT • German business confidence fell to the weakest in more than four years as the escalation of global trade tensions weighed heavily on the outlook.

Along with a survey showing manufacturing still contracting and new orders falling, it’s a reminder of the shaky situation Europe’s largest economy is in.

Its car industry is in an upheaval and industrial giants such as Thyssenkrupp AG are seeing earnings plunge.

The drop in the Ifo Institute for Economic Research index was bigger than forecast and took the closely watched gauge to its lowest since November 2014.

The expectations index was unchanged on the month, providing some hope that the current uncertainty will pass. The euro extended its decline against the dollar.

As Germany takes a hit from external factors because of weaker global demand, the domestic side is holding up for now.

Consumer spending rose the most in almost eight years in the first quarter (1Q), helping the economy grow 0.4%.

Capital investment and construction also gained, though some of the support may prove short-lived.

The Bundesbank said this week that the strong consumer spending is probably temporary as the effect of expansive fiscal measures introduced at the start of the year is likely to fade.

It has cautioned against reading too much into the 1Q performance, saying the economy’s underlying trend remains weak and the downturn in industry could even intensify.

Still, a prolonged decline in inventories suggests the biggest disruptions from one-time factors — such as problems in the auto sector — should be over, according to Carsten Brzeski, chief economist at ING Germany.

“There is reason to worry, particularly about the manufacturing industry,” Ifo president Clemens Fuest said on Bloomberg Television.

Because of “strong” consumption, he expects a stabilisation in the economy, “but nothing like any strong recovery”.

The key concern is the flare-up in a trade conflict between the US and China, which the Organisation for Economic Cooperation and Development said has put the global economy on a low growth track that’s clouded by risks.

IHS Markit Ltd said yesterday its euro-area Purchasing Managers’ Index points to “subdued business growth amid stagnant demand”.

Germany and the eurozone have so far managed to escape a direct hit from US protectionism, but the region could still be dragged into the conflict, with consequences for Germany’s auto sector.

US President Donald Trump earlier this month delayed imposing tariffs on car imports from the European Union and Japan for 180 days, while saying they represent a threat to US national security. — Bloomberg