Worries are growing about the strength of the German economy, Europe’s largest, after a key indicator suggested fears about trade wars and Brexit are hitting business activity and after the country’s main stocks index slid into a bear market.
The Ifo Institute said Tuesday its business confidence index dropped to 101.0 points for December from 102.0 points in November as managers’ view of both their current circumstances and their prospects for the next six months fell. That’s the fourth drop in a row and the lowest reading in 27 months.
Uncertainty over the economy is growing just as the European Central Bank last week confirmed it will end its 2.6 billion-euro ($3 billion) stimulus program conducted through bond purchases. The ECB says the economy is strong enough to halt the stimulus, but is keeping other support measures such as record low interest rates in place. The ECB has indicated rates will not rise before fall 2019, and has indicated it could delay any first hikes in case of economic trouble.
Germany’s economy shrank 0.2 percent in the third quarter and there are increasing worries about the effect of multiple issues, like Britain’s decision to leave the European Union and new tariffs from the U.S. administration of President Donald Trump. The third-quarter contraction was largely blamed on a one-time slump in car sales as Daimler and Volkswagen faced bottlenecks getting cars certified for new, tougher emissions standards.
Economist Carsten Brzeski at ING Germany said that “the German economy has entered a dangerous vicious circle of too many one-off factors, dwindling global growth and political risks finally leaving their mark.” That was despite continuing strong domestic demand from consumers, who are enjoying cheaper fuel prices and low unemployment.
German’s DAX 30 stock index traded at 10,810 on Thursday, up 0.4 percent on the day. The index, which contains big corporate names such as Siemens, Deutsche Bank, Bayer, BASF, Adidas, ThyssenKrupp and BMW, entered bear market territory on Monday, defined as a decline of 20 percent or more from its January peak.
The Ifo index is based on some 9,000 survey responses from firms in manufacturing, the service sector, trade and construction.
Source: The Associated Press