German business climate falls in June, outlook slightly more optimistic

Source: ICIS News

2018/06/25

LONDON (ICIS)--Germany’s business climate cooled in June to its lowest level of the year so far, especially in the trade sector, according to the country’s research institute Ifo on Monday.

Solar penals in BavariaIfo’s business climate index for Europe’s largest economy fell to 101.8 points, the fourth occasion in the last five months that it has declined, having stood at 102.3 in May, 102.2 in April, 103.4 in March, 104.2 in February and 104.8 in January.

“Companies were less satisfied with their current business situation,” said Ifo.

“Their business expectations, by contrast, remained slightly optimistic. The tailwind enjoyed by the German economy is calming down.”

The trade sector recorded the most significant drop in the index as companies downwardly revised their previously very good assessments of the current business situation. Business outlook in the trade sector turned slightly pessimistic for the first time in over three years.

The manufacturing sector, meanwhile, saw a decline in its business climate due to poorer assessments of the current business situation. However, business expectations in manufacturing remained slightly optimistic as manufacturers plan to ramp up production in the months ahead.

Construction also saw its business climate index edge downwards as contractors said they were less satisfied with their current business situation; however, their expectations for the future remain slightly optimistic.

Despite the fall in June, analysts at Oxford Economics says this month’s readings show signs of stabilisation after a disappointing first half of the year.

According to Oxford Economics, the business climate “was dragged down by a further material reduction in firms’ assessment of their current business situation to 105.1 from 106.1, a 13-month low.

“That suggests that growth has not bounced back at the end of Q2. However, the more forward-looking Ifo expectations recorded a stable outlook. But at 98.6, that still marks a two-year low.”

The analysts added that while it is tempting to put a positive spin on this month’s results, the threat from US president Donald Trump to impose tariffs on US car imports means expectations are likely to fall again in July.

“We see no reason to change our view that the Eurozone economy is past its growth peak and that our view of GDP growth rates in the vicinity of 0.4% per quarter are still facing downside risks as uncertainty becomes a drag on firms’ investment intentions,” the analysts concluded.

Pictured: Aerial view of solar panels in Bavaria, southern German Source: WestEnd61/REX/Shutterstock