BERLIN: The economic outlook has deteriorated worldwide as the trade dispute between the US and China escalates, a survey showed on Monday.
Germany’s Ifo economic institute said its quarterly survey among nearly 1,200 experts in more than 110 countries showed that its measures for current conditions and economic expectations have both worsened in the third quarter.
“The experts expect significantly weaker growth in world trade,” Ifo President Clemens Fuest said, adding that trade expectations hit the lowest since the beginning of the tariff conflict last year.
“Respondents also expect weaker private consumption, lower investment activity, and declining short- and long-term interest rates,” Fuest said.
US President Donald Trump said on Friday he was not ready to make a trade deal with China and even called a September round of talks into question, raising fresh doubts in financial markets that the dispute is unlikely to end anytime soon.
The US and China are important export destinations for German manufacturers, so the tit-for-tat tariff dispute between the world’s two largest economies is having a large impact on German goods producers.
The German economy, Europe’s largest, is widely expected to have contracted in the second quarter, and sentiment indicators suggest hardly any improvement in the third.
“We’re in the twilight zone of a marked economic slowdown and a recession,” said Commerzbank economist Joerg Kraemer.
Germany’s Federal Statistics Office will release preliminary gross domestic product figures for the April-June period on Wednesday. A Reuters Poll of analyst predicts a 0.1 percent contraction quarter-on-quarter.
Some of Europe’s troubles cannot be blamed on the trade dispute.
BACKGROUND
• The US and China are important export destinations for German manufacturers.
• The tit-for-tat tariff dispute between the world’s two largest economies is having a large impact on German goods producers.
• The German economy is widely expected to have contracted in the second quarter.
The auto industry is under pressure to meet lower greenhouse gas emissions limits imposed by the EU. Automakers had expected to rely on more fuel-efficient diesels to help meet the requirements, but saw diesel sales plunge after Volkswagen was caught in 2015 cheating on diesel emissions tests.
Another source of uncertainty is Britain’s impending departure from the EU, currently set for Oct. 31. British Prime Minister Boris Johnson has said he wants to leave without an extension even if that means no divorce deal to smooth trade.
In an effort to ward off a steeper slowdown or possible recession, the European Central Bank has signaled it could provide more monetary stimulus at its Sept. 12 meeting, including new purchases of bonds, which pump newly created money into the economy. It’s a measure of Europe’s reversal of fortune that a four-year, €2.6 trillion ($2.9 trillion) bond purchase program was halted only in December.
“What is hurting German exports currently is the uncertainty which has spread across the globe and has also paralyzed many European economies,” said Carsten Brzeski, chief economist for Germany at ING.
“Looking ahead, the outlook for German exporters is clearly in the hands of the US and China.”
