German Economic Sentiment Plunges On Trade Disputes, Weak Data

germany jun14

Germany's economic confidence weakened sharply to a seven-month low in June on trade disputes, geopolitical factors and weak domestic activity, survey data from the ZEW-Leibniz Centre for European Economic Research showed on Tuesday.

The economic sentiment index dropped 19 points to -21.1 in June from -2.1 in May. This was the lowest reading since November 2018. The score was forecast to fall moderately to -5.6.

This sharp decline coincides with an increased uncertainty regarding the future development of the global economy and substantially worsened figures for the German economy at the beginning of the second quarter, ZEW President Achim Wambach said.

"The intensification of the conflict between the USA and China, the increased risk of a military conflict in the Middle East and the higher probability of a no-deal Brexit are all casting a shade on the global economic outlook," Wambach added.

Moreover, recent data on domestic production, exports and retail sales were worse than expected, Wambach noted.

The current situation indicator came in at 7.8 in June versus 8.2 a month ago and forecast of 6.1 points.

The Eurozone economic sentiment index declined 18.6 points from last month to -20.2 in June. By contrast, the indicator for the current economic situation climbed 3.3 points to minus 3.7 points.

Bunesbank on Monday said the largest euro area economy is set to shrink in the second quarter as temporary factors that boosted first quarter growth fade.

Earlier this month, the central bank downgraded the German growth outlook for this year to 0.6 percent from 1.6 percent and that for next year to 1.2 percent from 1.6 percent.

The ifo Institute on Thursday lowered Germany's growth outlook, citing that the weakness in the industrial sector is gradually spreading to other sectors.

In the summer forecast, released Tuesday, the think tank downgraded its 2020 growth outlook to 1.7 percent from 1.8 percent. The forecast for this year was maintained at 0.6 percent.

The ifo institute noted that the export-oriented manufacturing sector is in recession. Meanwhile, service providers and the construction sector are posting strong growth.

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