May 14, 2019 / 9:15 AM / 2 months ago

Escalating U.S.-China trade dispute hits German investor morale

BERLIN (Reuters) - The mood among German investors deteriorated unexpectedly in May, a survey showed on Tuesday, as the escalating trade dispute between China and the United States clouds the growth outlook for Europe’s largest economy.

Washington and Beijing have ramped up their trade conflict in recent days as China announced details of new tariffs against U.S. imports, following a U.S. move to target Chinese imports. Both countries are important markets for German exporters, meaning tariffs are hurting their business too.

The ZEW research institute said its monthly survey showed economic sentiment among investors fell to -2.1 from 3.1 in April. Economists had expected an increase to 5.0.

“The most recent escalation in the trade dispute between the United States and China again increases the uncertainty regarding German exports, a key factor for the growth of the gross domestic product,” ZEW President Achim Wambach said.

A separate gauge measuring investors’ assessment of the economy’s current conditions increased to 8.2 from 5.5 the previous month. Markets had predicted a rise to 6.0.

ZEW said better-than-forecast industrial output and exports gave rise to hope that the German economy grew more strongly than expected in the first quarter.

Germany’s Federal Statistics Office is due to release preliminary gross domestic product (GDP) growth data for the January-March period on Wednesday.

Analysts expect the German economy to have grown by 0.4% on the quarter in the first three months of 2019, following a stagnation in the final three months of last year.

MASSIVE THREAT

“The ongoing course of confrontation between the United States and China is posing a massive threat to the world economy,” said Joachim Lang, Managing Director of Germany’s BDI industry association.

U.S. President Donald Trump is also mulling higher tariffs on car imports from Europe, with a decision is expected this week.

Lang said higher tariffs were hurting everybody and added that there are only losers in a trade war.

“National solo efforts and tariffs are wrong,” Lang said. “The U.S. should work constructively towards a reform of the World Trade Organization (WTO).”

German exporters are also struggling with weaker foreign demand and business uncertainty caused by Britain’s expected departure from the European Union. The headwinds from abroad mean the economy is likely post meagre growth this year.

The government last month halved its 2019 growth forecast to 0.5%. That would mark a sharp slowdown after expansion rates of 2.2% in 2017 and 1.4% in 2018.

Editing by Michelle Martin

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