German business confidence slumps
Europe’s biggest economy on brink of recession, as analysts warn that outlook ‘has yet to hit a floor’
German business confidence has sunk to its lowest level in nearly seven years according to a closely watched measure, as the country’s ailing manufacturing sector drags it to the brink of recession. Europe’s biggest economy is struggling as its exportreliant manufacturers feel the impact of global trade headwinds, which sent it into a 0.1pc contraction during the last quarter. The IFO Institute’s business climate index showed confidence slid for the fifth month in a row.
GERMAN business confidence has sunk to its lowest level in nearly seven years according to a closely-watched measure, as the country’s ailing manufacturing sector drags it to the brink of recession.
Europe’s biggest economy is struggling as its export-reliant manufacturers feel the impact of global trade headwinds, which sent it into a 0.1pc contraction during the last quarter.
The latest figures from the Ifo Institute’s business climate index, released yesterday, showed confidence slid for the fifth month in a row during August to reach its lowest level since November 2012, falling from 95.8 to 94.3.
A handful of German industrial giants have cut their forecasts as trade worries escalate. The Ifo’s report said manufacturing outlook “has yet to hit a floor”, with expectations hitting their lowest levels since the financial crisis.
The German government has indicated it is looking into finding ways of stimulating the economy through investment, with Olaf Scholz, the finance minister, floating a €50bn (£45.4bn) figure for easing.
“The last time that industrial companies demonstrated such pessimism was in the crisis year of 2009,” said Clemens Fuest, Ifo president. “Not a single ray of light was to be seen in any of Germany’s key industries.”
Mr Fuest said service sector conditions had “deteriorated noticeably”, while a decline in wholesaling hurt trade. Construction sector sentiment dipped slightly, but Ifo found companies were “not expecting a major change in what are still very favourable business conditions”.
Fears of a global recession have risen in recent weeks, as a tit-for-tat tariff clash between China and the US spilt onto markets, sending investors fleeing from equities.
UBS, the world’s biggest wealth manager with £2.03 trillion in investments under its auspices, has shifted to a pessimistic position on stocks for the first time since the eurozone crisis – a sign that negative sentiment is increasingly taking hold.
“Risks to the global economy and markets have increased, following a renewed escalation in Us-china trade tensions,” Mark Haefele, UBS’S global chief investment officer, said in a memo to investors.
Markets are also being roiled by worries over the risk of a no-deal Brexit, which have pushed the expectations for inflation to their highest level in more than a decade. A measure of inflation expectations for the next five years has jumped to near 4pc amid rising fears of a cliff edge Brexit on Oct 31.
The surge in RPI swap rates suggests that investors are bracing for a period of high inflation not seen since the rise in oil prices earlier this decade and the first half of the Nineties, warned Bank of America Merrill Lynch.
Economists have warned that inflation would spike in a no-deal Brexit. Import costs would be pushed up by a slump in the pound and higher tariffs.
The inflation measure is at “extreme levels” and is “striking” given the “chronically depressed” expectations elsewhere, said Mark Capleton, a Bank of America Merrill Lynch strategist.
He added political risks, such as higher government spending, and a “credibility loss” at the Bank of England could also be contributing to this “unique trend” in the UK.
Expectations for inflation in the eurozone, for example, have hit record lows amid fears that the European Central Bank will struggle to lift already subdued CPI as growth stutters.
Investors will be paying close attention to Germany’s consumer price index inflation figures, due for release on Thursday. Inflation in the country has recovered from deflationary lows hit in 2016, but fallen again slightly this year.