August 27, 2018 / 8:12 AM / 3 months ago

EU trade truce with Trump lifts German business morale

BERLIN (Reuters) - German business morale improved for the first time this year in August as a trade truce between the European Union and United States made company executives less concerned about a transatlantic trade war.

FILE PHOTO: The Frankfurt skyline with its financial district is photographed in the early evening in Frankfurt, Germany, March 25, 2018. REUTERS/Kai Pfaffenbach/File Photo

The Ifo economic institute said on Monday its closely-watched business climate index jumped to 103.8, beating July’s reading of 101.7 and a Reuters consensus forecast of 101.9.

U.S. President Donald Trump agreed during a meeting with European Commission President Jean-Claude Juncker last month to refrain from imposing tariffs on European cars while the two sides negotiate to cut other tariffs.

“The truce between Juncker and Trump is clearly providing relief,” Ifo economist Klaus Wohlrabe told Reuters, adding that export expectations in Europe’s largest economy had risen significantly after dropping in July.

The August reading was the highest since February and marked the strongest monthly improvement since December 2014.

Ifo chief Clemens Fuest also cited robust domestic conditions. “The German economy is performing robustly. Current figures point to economic growth of 0.5 percent in the third quarter,” he said.

‘NO CRISIS’

German companies were once again more satisfied with their current situation and their business expectations were revised noticeably upwards, the survey showed.

The main support came from services and construction, a sector breakdown showed. But business sentiment also improved slightly in manufacturing and retailing.

August’s IHS Markit sentiment survey among purchasing managers also showed the private sector shifting into a higher gear, helped by strong services activity.

“The global trade dispute so far hasn’t turned out to be a sentiment killer,” Alexander Krueger from Bankhaus Lampe said. “Everything is pointing to a continuation of the robust upswing.”

MORE OPTIMISTIC

Ifo’s Wohlrabe said the strong domestic situation was also outweighing uncertainty caused by Britain’s planned departure from the EU and the Turkish lira crisis. “We expect full-year economic growth of 1.8 or even 1.9 percent,” he said.

The German economy grew 0.5 percent quarter-on-quarter in the April-June, helped by construction, state spending and private consumption.

However, a larger-scale trade dispute between the United States and China could also harm Germany, many of whose manufacturers rely on growth in the world’s two largest economies.

“Up to now, talks and fears of new crises, trade wars or a sudden end to a mature cycle have only been talks and threats,” ING analyst Carsten Brzeski said, adding all those concerns had not left any significant marks on the German economy yet.

The economy was set to continue its balancing act between the favourable effects of the European Central Bank’s loose monetary policy and a lack of new structural reforms as well as between solid domestic demand and trade frictions, Brzeski said.

Additional reporting by Joern Poltz and Rene Wagner; editing by John Stonestreet and David Stamp

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