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German business morale weakens, but is Trump to blame?


Business

German business morale weakens, but is Trump to blame?

German businesses are gloomier this month. A regular survey of some 7,000 firms in Europe’s largest economy showed morale unexpectedly dropped.

It was previously at its highest level in almost three years.

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The United States is Germany’s most important single export destination and President Donald Trump’s protectionist comments have unsettled German politicians and business leaders.

But economist Klaus Wohlrabe at the Ifo research institution, which carried out the surveys, said the weaker morale does not seem to be linked to the new man in the White House: “So far Donald Trump has had no effect on the current surveys, which surprised us because his remarks would indicate not such a good mood, or sentiment suffering in the German export industry. But surprisingly, export expectations rose, and for now, that sentiment is still very optimistic. But of course nothing concrete has been decided so far.”

Dampener

Others were not so sure. Dekabank economist Andreas Scheuerle said: “It did not even take a week for US President Trump to put a dampener on the mood of German companies.”

He added that Trump’s latest remarks made business leaders realise that growing protectionism was not just a theoretical threat.

Business morale deteriorated in all four major areas – manufacturing, construction, wholesaling and retailing – with companies expressing a higher level of satisfaction with their current business situation, but less optimism on the outlook six months from now.

Despite that, the Ifo research institution is sticking to its forecast that the German economy will grow by 1.5 percent in 2017.

Protectionism and Brexit

With trade prospects potentially subdued not only by Trump’s protectionist policy plans, but also by Britain’s decision to leave the EU, the German economy looks set to remain dependent on domestic demand this year.

“Particularly the construction sector should remain an important growth driver in 2017,” ING economist Carsten Brzeski said.

“Maybe one of the few upsides of many uncertainties in traditional export destinations could be a rethinking or reorientation of the economy, finally leading to a kick-start of investments at home.”