German business morale falls to its lowest level since 2012
- 26 Aug 2019
German business sentiment deteriorated more than expected in August to hit its lowest since November 2012, a survey showed on Monday, in a further sign that escalating trade disputes are pushing Europe’s largest economy toward a recession.
Germany’s export-reliant manufacturers are struggling with weaker foreign demand, tariff disputes sparked by Trump’s ‘America First’ policies and business uncertainty linked to Britain’s decision to leave the European Union.
The Munich-based Ifo institute said its business climate index fell to 94.3 from an upwardly revised 95.8 in July. The August reading, the fifth monthly decline in a row, undershot a consensus forecast for 95.1.
“There are ever more indications of a recession in Germany,” Ifo President Clemens Fuest said in a statement. Companies were much less satisfied with their current situation and their pessimism about the coming months also increased, he added.
“The last time that industrial companies demonstrated such pessimism was in the crisis year of 2009. Not a single ray of light was to be seen in any of Germany’s key industries.”
The Ifo survey followed Markit’s survey of purchasing managers (PMI) released last Thursday showed Germany’s private sector continued to struggle in August as a manufacturing recession dragged on and activity in the services sector eased slightly.
The German economy contracted 0.1 per cent in the April-June period due to a plunge in exports. The Bundesbank said last Monday the German economy could have continued to shrink over the summer as industrial production falls amid a lack of orders.
Most economists describe a period of at least two consecutive quarters of economic contraction as a technical recession.
“German companies have to buckle up in the coming quarters. As bitter as it sounds, the export dependence of the German economy is currently becoming a boomerang,” VP Bank analyst Thomas Gitzel.
The unexpectedly weak Ifo figures are likely to lead to even more calls for the federal government to inject more fiscal stimulus into the economy by increasing public investment in the infrastructure.
Slumping exports sent Germany’s economy into reverse in the second quarter, with prospects of an early recovery slim as its manufacturers struggle at the sharp end of a global slowdown amplified by tariff conflicts and fallout from Brexit.
Overall output fell 0.1 per cent quarter-on-quarter, data showed. With pressure growing on a thus far reluctant government to provide more fiscal stimulus, the economy minister said action was needed to prevent a second consecutive quarter of contraction that would tip the country into recession.
The global slowdown, reinforced by Chinese industrial output expanding at its lowest rates in 17 years in July, has broadly impacted the eurozone, where corresponding data showed second quarter growth halved to 0.2 per cent.
But Germany’s traditionally export-reliant economy - Europe’s largest - has been particularly vulnerable, amid signs that the boost it has received from a sustained period of surging domestic demand is waning.
“Today’s GDP report definitely marks the end of a golden decade for the German economy,” said ING analyst Carsten Brzeski.
“Trade conflicts, global uncertainty and the struggling automotive sector have finally brought (it)... down on its knee.”
On a calendar-adjusted basis, annual growth slowed to 0.4 per cent from 0.9 per cent in the first quarter, the Federal Statistics Office data showed, and for 2019 overall Berlin expects growth to drop to just 0.5 per cent from last year’s 1.5 per cent.
The economy ministry called the outlook subdued, noting that Britain’s scheduled exit from the EU on Oct. 31 looked likely to be a disorderly one, while Economy Minister Peter Altmaier said Wednesday’s data was a wake-up call.
“We are in a phase of economic weakness but not yet in recession. We can avoid that if we take the right measures,” Altmaier told mass-market daily Bild.
His ministry said impetus was unlikely to come from the industrial sector, whose BDI association — in an unusual move -joined a growing chorus of voices urging the government to kick-start growth by ditching its balanced budget rule and finance more public investments through new debt.
A government spokeswoman said Berlin did not currently see “any need for further measures to stabilise the economy,” which was still expected to grow slightly this year.
Despite Wednesday’s headline quarterly figure matching expectations, markets also took fright, with the yield on Germany’s benchmark 10-year government bond hitting a record low of -0.624 per cent.
Reuters
