The Munich-based Ifo Institute for Economic Research warned the German economy is “heading for the doldrums” as its business climate index deteriorated for the third month in a row. The business index fell to 97.4 in June, down from the 97.9 recorded in May. It marks its lowest level since November 2014. Germany has been battling repercussions from the increasingly bitter United States-China trade war, as well as car sales being dented by a cooling world economy impact demand for vehicles.
Berlin has seen its manufacturing sector plunge into recession territory, where it still remains as of this month.
Ifo President Clemens Fuest warned the business climate in both the manufacturing and services sectors had worsened.
He said: “The German economy is heading for the doldrums.”
The Bundesbank said this month it expects the economy to contract slightly in the second quarter after an expansion of 0.4 percent between January and March.
The German government has halved its 2019 growth forecast to 0.5 percent after an expansion of 1.5 percent in 2018, the weakest rate in five years.
Markit economist Chris Williamson said he expected a growth rate of between 0.2 percent and 0.3 percent in the second quarter, adding that the manufacturing sector had not necessarily bottomed out yet.
Mr Williamson said: “But the service sector is still a key driver of German growth and I think that will continue to be so.”
Ifo economist Klaus Wohlrabe said the trade conflict between the US and China was the main source of uncertainty for German businesses.
He said he did not expect a recession.
Carsten Brzeski of ING said he expected the services sector to remain the main driving force for the broader economy and that the slowdown in the manufacturing sector would bottom out.
The European Central Bank’s decision not to raise interest rates in the next year could cement the status of consumption as the main growth driver in Germany, he added.
He said: “A bottoming-out is in sight for German industry.
“The recent u-turn of the ECB towards more dovishness indicates that financing conditions for new domestic investments will remain favourable.
“However, let’s be clear, a bottoming out is still far from being a strong rebound.”