German business sentiment lowest since November 2014

BERLIN — 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% between January and March. The government has halved its 2019 growth forecast to 0.5% after an expansion of 1.5% in 2018, the weakest rate in five years.

Ifo economist Klaus Wohlrabe said the trade conflict between the US 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.

‘FEAR OF LOSING’

An index measuring managers’ assessment of their current situation rose slightly while another gauging expectations fell to its lowest level since February.

That suggested the slump in the headline reading to levels not seen since the euro zone debt crisis was driven by concerns that trade conflicts between the US and both China and the European Union could worsen and further dampen exports.

“Fear of losing. This is the best summary of the current state of Germany’s businesses,” Carsten Brzeski of ING wrote in a note.

The services sector, buoyed by a solid domestic economy, has been providing impetus as industry shrinks, but some economists fear the recession in the manufacturing sector could spread. —