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German investor morale tumbles as trade war worries grow

Reuters  |  BERLIN 

By Joseph and Rene Wagner

BERLIN (Reuters) - German investor morale plunged to its lowest level in more than five years in April on growing fears of a trade war with the that would hurt exporters and damage an economy which already shows signs of weakening.

The research institute's index of economic sentiment among investors, published on Tuesday, dropped more than 13 points on the month, its sharpest decline since July 2016.

April's reading of -8.2 -- down from 5.1 in March -- was the lowest since November 2012 and marked the third monthly fall in a row. A poll had forecast a fall to -1.0.

"The reasons for this downturn in expectations can mainly be found in the international trade conflict with the and the current situation in the Syrian war," said.

"The significant decline in production, exports and in in the first quarter of 2018 is also having a negative effect."

A separate gauge measuring investor assessment of the economy's current conditions edged down to 87.9 from 90.7 last month, falling just short of the consensus forecast for a reading of 88.0.

Analysts said the convergence of weak economic data in the first two months of the year and the plunging could signal weaker growth in although a recession was unlikely.

"Nothing is as bad as it looks," said of "The growth momentum may ease in coming quarters but a significant economic downturn is not to be feared."

Germany's leading economic institutes appear to share this view. Sources told on Tuesday they plan to raise their growth forecast for Europe's largest economy to 2.2 percent this year from 2 percent previously.

'END OF EURO-PHORIA'

But the prospect that a trade dispute between the and could escalate is creating uncertainty for export champion and the wider euro zone, where a strengthening currency is already hurting growth.

A poll of economists published on Tuesday found that the trade dispute between the world's two largest economies was likely to be a further drag on the euro zone's expansion.

After U.S. imposed tariffs on imports of and aluminium last month, German said on Tuesday that the must continue to act calmly and stick to its free trade principles.

A WTO filing on Monday showed the EU is seeking compensation from the for the tariffs, as has also done.

Weak data in and the euro zone could threaten the European Central Bank's plan to end its asset purchases programme this year and hike interest rates in 2019.

of said the steep decline in morale was a sign that investors were taking note of the stuttering German data but there was "no reason to get overly concerned".

But only a strong rebound in March's data would prevent an unexpectedly weak first quarter, he added.

"As much as the end of last year was about overshooting and too much euro-phoria, recent data could be the result of undershooting," Brzeski wrote in a note to clients.

"The truth is somewhere in the middle. Still, the current convergence of soft and hard data is not a convergence ECB officials like to see."

(Writing by Joseph Nasr; Editing by Catherine Evans)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, April 17 2018. 17:54 IST
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