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Trade frictions darken German corporate mood

July 25, 2018

German business confidence dipped to its lowest level since March last year amid worries about the outlook for Europe's biggest economy and the threat of an accelerating global trade conflict.

Frankfurt Reaktionen an der Börse US Wahlen 2016
Image: picture-alliance/AP Photo/M. Probst

Confidence among German corporate leaders fell in July, suggesting growing uncertainty and worries among business executives in Europe's largest economy over the escalating global trade tensions.   

The Munich-based Ifo institute said on Wednesday that its closely watched business confidence survey fell to 101.7 points in July from 101.8 points in June after declining each month since the start of the year. Based on a survey of about 7,000 executives, the Ifo's July index was marginally higher than the 101.5 forecast by analysts.

Read more: EU ramps up attack on Trump auto tariff plans

"The German economy continues to expand, but at a slower pace," said Ifo chief Clemens Fuest. "Companies were slightly more satisfied with their current business situation, but scaled back their business expectations slightly," Fuest noted in a statement.

German economy facing headwinds for 2018

The release of the latest Ifo report came as the European Union steps up efforts to head off the threat of US President Donald Trump imposing tariffs on EU car imports.

European Commission President Jean-Claude Juncker is due to meet Trump in Washington on Wednesday in a bid to de-escalate trade tensions between their two giant economies.

But ahead of his meeting with Trump, Juncker said he was "not very optimistic" that he could talk the US leader out of border taxes on car imports from the EU.

Strong growth

Any US tariffs on EU cars and car parts would hit the German economy hard, as the car industry accounts for some 800,000 jobs in the country. The Association of German Chambers of Industry and Commerce (DIHK) estimates American tariffs on imported cars would slash around €6 billion ($7 billion) off economic output.

But at the weekend, German Economy Minister Peter Altmaier said it was difficult to estimate the impact of any US car tariffs on the German economy.

Read more: Donald Trump willing to slap tariffs on all Chinese imports

The Ifo survey showed morale weakening in the manufacturing and trade sectors while it picked up in the service and construction branches.

It comes after a survey published earlier this month showed the mood among German investors slumped to its lowest since August 2012 amid concern about escalating trade tensions with the United States.

Nonetheless, economists said the Ifo index, which has fallen in six of the last seven months, pointed to continued solid growth in Germany. The government has said it expects growth to accelerate slightly in the second quarter from 0.3 percent in the first three months of the year, despite the risks that Brexit and the threat of a global trade war pose.

Other recent data have painted a bright picture, with exports, industrial output and factory orders all rising while private sector activity grew faster than expected.

sri/tr (dpa, AFP, Reuters)