German business confidence fell to the weakest in more than four years as the escalation of global trade tensions weighed heavily on outlook.
Along with a survey showing manufacturing still contracting and new orders falling, it’s a reminder of the shaky situation Europe’s largest economy is in. Its car industry is in upheaval and industrial giants such as Thyssenkrupp AG are seeing earnings plunge.
The drop in the Ifo index was bigger than forecast and took the closely watched gauge to its lowest since November 2014. The expectations index was unchanged on the month, providing some hope that the current uncertainty will pass. The euro extended its decline against the dollar. As German takes a hit from external factors because of weaker global demand, the domestic side is holding up for now.
Consumer spending rose the most in almost eight years in the first quarter, helping the economy grow 0.4 percent. Capital investment and construction also gained, though some of the support may prove short-lived.
The Bundesbank said this week that the strong consumer spending was probably temporary as the effect of expansive fiscal measures introduced at the start of the year is likely to fade. It’s cautioned against reading too much into the first-quarter performance, saying the economy’s underlying trend remains weak and the downturn in industry could even intensify.
Still, a prolonged decline in inventories suggests the biggest disruptions from one-time factors — such as problems in the auto sector — should be over, according to Carsten Brzeski, chief economist at ING Germany.