German industrial activity sluggish; Growth slows

German industrial activity is sluggish and recent data point to slower growth in the service sector, the German Economy Ministry said, adding this suggested Europe’s largest economy would experience a weak general economic trend.

“After what is shaping up to be a subdued development in the second quarter, the forces of economic upswing could become more prominent again if the external environment settles,” the ministry said in its monthly report published on Monday.

But it added that there were significant downside risks such as trade conflicts, Britain’s expected departure from the European Union and geopolitical tensions.

The Bundesbank has said economic output will fall slightly in the second quarter.

European shares trod water on Monday as worrying comments on Germany’s industrial and services sectors curbed optimism stemming from China’s encouraging factory output and retails sales data.

Germany’s Economy ministry said its industrial activity is sluggish and recent data pointed to slower growth in the services sector, which led Frankfurt’s DAX to give up gains of as much as 1 per cent.

“The German manufacturing sector has been contracting throughout 2019, but what is concerning about this update is the talks about slowing growth in the services sector, which was actually doing well,” said David Madden, market analyst at CMC Markets in the UK.

“Germany is the powerhouse of Europe and if their economy isn’t in good shape that is going to spell bad news for European countries.”

The pan-region index traded flat at 0904 GMT. German shares, which have a significant exposure to China, were trading up 0.2 per cent as Chinese factory output and retail sales data topped forecasts.

“The June data... is an imminent upturn, markets seem to be growing a bit more confident that the stimulus we’ve seen from Chinese authorities over the past six to nine months is actually working its way through the system,” said Florian Hense, European economist at Berenberg in London. Auto stocks were the biggest gainers, up 1 per cent, followed by the technology sector.

Regional chipmakers gained after a senior US official said the United States may approve licenses for companies to re-start new sales to blacklisted Chinese telecoms equipment maker Huawei in as little as two weeks.

Infineon, ASM and STMicroelectronics rose between 0.2 per cent and 0.8 per cent.

European shares saw a massive fall in May due to a sharp escalation in trade tensions, but have recovered since on hopes of looser monetary policy from major banks. Positive developments on trade is a key factor that will determine if this rally can sustain.

Galapagos NV surged 1 per cent to top the regional benchmark after Gilead Sciences Inc said it will invest $5.1 billion in the Belgian-Dutch biotech firm.

Meanwhile, Anheuser-Busch InBev dropped after it pulled the planned listing of its Asia Pacific unit in Hong Kong, Budweiser Brewing Company APAC Ltd, in what would have been the world’s biggest initial public offering of 2019.

Meanwhile the German business morale fell to its lowest level since November 2014 in June, a survey showed on Monday, adding weight to expectations that Europe’s largest economy contracted in the second quarter.

The Ifo institute said its business climate index deteriorated for the third month in a row, to 97.4 in June from 97.9 in May. That was slightly above a consensus forecast for 97.2.

“The German economy is heading for the doldrums,” Ifo President Clemens Fuest said, adding that the business climate in both the manufacturing and services sectors had worsened.

After nine successive years of growth, the German economy is struggling as trade disputes and a cooling world economy hurt its export-dependent manufacturers and as Britain’s delayed exit from the European Union creates uncertainties.

The Bundesbank said this month it expects the economy to contract slightly in the second quarter after an expansion of 0.4 per cent between January and March. The government has halved its 2019 growth forecast to 0.5 per cent after an expansion of 1.5 per cent in 2018, the weakest rate in five years.

Ifo economist Klaus Wohlrabe said the trade conflict between the United States and China _ the world’s two largest economies _ was the main source of uncertainty for German businesses. He said he did not expect a recession, a view also held by analysts.

“All told, we expect the German economy to slow to little more than a crawl in the second quarter,” Christina Iacovides of Capital Economics wrote in a note.

Reuters