German business confidence dipped in July, suggesting a slew of risks, including the threat of US tariffs on cars and car parts, is starting to unsettle company executives in Europe’s largest economy.
The Munich-based Ifo economic institute said its business climate index fell to 101.7 from 101.8 in June, but it did not register as big a drop as forecast.
Economists polled by Reuters had expected a reading of 101.5.
US President Donald Trump’s trade policy, along with a recent government crisis in Germany that was caused by a dispute over migration but which has since been resolved, increased uncertainty, Ifo economist Klaus Wohlrabe told Reuters.
“In an export-oriented economy – in which the US is still the largest export destination – the prospects of more complicated trade are creating concern,” ING economist Carsten Brzeski said.
“For now, the German economy clearly shows sign of fear but does not feel it,” he added.
Companies felt slightly more upbeat about their current situation, but their expectations for the coming six months worsened, the survey showed.
Citing national security grounds, Washington imposed tariffs on steel and aluminium imports from the European Union, Canada and Mexico on June 1.
Now Trump is threatening to extend them to EU cars and carparts – a worry for Germany, where the car industry accounts for some 800,000 jobs.
While overall export expectations picked up for the first time in seven months, they fell significantly in the car industry, Wohlrabe said.
The DIHK Chambers of Commerce estimates US tariffs on imported cars would slash around €6 billion off economic output.
At the weekend, Economy Minister Peter Altmaier said it was difficult to estimate the impact of any US car tariffs on the German economy.
But tariffs on aluminium and steel were worth just over €6 billion, he said, and car tariffs would probably be about 10 times that.
European Commission President Jean-Claude Juncker will discuss trade with Trump at a meeting in Washington today.
Trump tweeted last night that the US and the European Union should drop all tariffs, barriers and subsidies, adding: “Hope they do it, we are ready – but they won’t!”
The Ifo survey showed morale weakening in the manufacturing and trade sectors while it picked up in the service and construction branches.
It comes after a survey published earlier this month showed the mood among German investors slumped to its lowest since August 2012 amid concern about escalating trade tensions with the US.
Economists said the Ifo index, which has fallen in six of the last seven months, pointed to continued solid growth in Germany.
The government has said it expects growth to accelerate slightly in the second quarter from 0.3% in the first three months of the year, despite the risks that the threat of a global trade war and Brexit pose.
Other recent data has painted a bright picture, with exports, industrial output and factory orders all rising while private sector activity grew faster than expected.
“The German economy continues to expand, but at a slower pace,” said Ifo chief Clemens Fuest.