German business morale sinks for a sixth month in February

German business morale fell for the sixth straight month in February, a survey showed on Friday, reflecting concern among corporate executives that trade hostilities will worsen a slowdown in Europe’s largest economy. The Munich-based Ifo economic institute said its business climate index fell to 98.5, the lowest since December 2014 and lower than a consensus forecast of 99.0.
“The German economy remains weak,” Ifo President Clemens Fuest said in a statement. The institute said the index as well as other indicators pointed to a growth rate of 0.2 percent in the first quarter.
The outlook for the export-dependent German economy has been clouded by trade frictions and the risk of Britain leaving the European Union next month without a deal.
Economists said the slide of the Ifo index suggested companies remained worried that the German economy would suffer more damage if the United States failed to resolve its trade disputes with both China and the European Union.
Of particular concern to German businesses is US President Donald Trump’s threat to impose tariffs on cars and auto parts imported from the EU. That would particularly hurt Germany’s carmakers, who export more than two-thirds of their vehicles.
“The closer we get to Brexit and a decision on US tariffs on cars, the more those issues will weigh on the confidence of companies,” said Andreas Scheuerle at DekaBank. “The small waves are getting bigger. In this stormy sea, companies are reefing their sails.”
CAR BLOCKADE Data published on Friday highlighted the importance of the auto sector. Detailed data confirmed economic growth was unchanged in the fourth quarter, and economists said bottlenecks in new car registrations contributed to the stagnation.
The data showed that exports, imports, investments, state spending and private consumption had all risen on the quarter.
“The growth components actually show an economy that is running on almost all cylinders,” ING Diba economist Carsten Brzeski wrote in a note. “With none of the traditional growth components being negative, the question arises why the economy is still on the brink of a recession? The answer is clear: cars are still blocking the road to a rebound.”
A breakdown of the data showed that state spending had risen by 1.6 percent, contributing 0.3 percentage points to economic growth. Exports and imports each rose by 0.7 percent in the quarter, so in net trade made no contribution.
Private consumption, which has been supporting the economy as exports weaken on trade frictions and bottlenecks in new car registrations, grew by a disappointing 0.2 percent and its contribution to growth was as little as 0.1 percentage points.
Stricter emissions rules that have hindered auto sales had weighed on both exports and private consumption, VP Bank chief economist Thomas Gitzel said. “We expect a catch-up effect in the current quarter,” he wrote in a note.
Germany’s dependence on exports for growth makes it particularly vulnerable to the trade disputes.
“Where do we go from here? What happens in the international arena will decide the prosperity and adversity of the German economy,” Gitzel said. “A resolution to the trade conflict will certainly leave a positive mark.”