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Falling business morale points to weak German growth

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Falling business morale points to weak German growth
FILE PHOTO: The sun sets behind the financial district early evening in Frankfurt, Germany, October 10, 2018. REUTERS/Kai Pfaffenbach   -   Copyright  Kai Pfaffenbach(Reuters)
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BERLIN (Reuters) – German business morale fell by more than expected in November as a trade dispute between China and the United States weighed on Germany’s export sector and hurt the economy.

The Munich-based Ifo economic institute said on Monday its business climate index fell for the third month in a row to 102.0. This was lower than a Reuters consensus forecast of 102.3.

“Sentiment among German businesses weakened further this month,” said Ifo chief Clemens Fuest. “Companies scaled back their assessments of the current business situation albeit from a high level. Their business expectations also clouded over.”

He added that the economy would grow by 0.3 percent in the fourth quarter at most after contracting by 0.2 percent in the July-September period.

Reciprocal tariffs on goods imposed by the world’s two largest economies are hurting German companies that manufacture in both countries and export in both directions across the Pacific.

The tariffs are not only dampening the business outlook but are starting to leave their mark on Europe’s economic powerhouse, which has long depended on exports for growth.

Data last week showed that weaker exports were the primary driver behind the first quarterly contraction since 2015 and economists said there are clear signs that German growth was slowing.

“The index’s fall is somewhat alarming,” Uwe Burkert of LBBW wrote in a note. “It was generally expected that the economic weakness of the third quarter would be corrected with a firmly positive growth figure in the fourth quarter.”

He added: “That optimistic picture has been damaged by today’s numbers.”

Detailed July-September GDP data on Friday showed exports fell 0.9 percent on the quarter while imports rose 1.3 percent, with net trade knocking a full percentage point off growth. This translated into a third quarter contraction of 0.2 percent.

German private sector growth also hit its lowest level in November in nearly four years as factories churned out goods at a slower pace and activity in services also ebbed, a IHS Market survey showed last week.

(Reporting by Joseph Nasr and Rene Wagner; Editing by Paul Carrel and Matthew Mpoke Bigg)

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