German business confidence sinks as Trump fears set in

By Andrew McCathie, dpa
Berlin (dpa/GNA) - German business has entered the new year in a downbeat mood as the nation's economics minister warned about the threat posed to Europe's biggest economy by US President Donald Trump's economic plans.

The Munich-based Ifo economic institute said Wednesday its closely watched business confidence index for Germany posted a surprise fall in January, slumping to 109.8 from 111 points in December.

"The German economy made a less confident start to the year," said Ifo chief Clemens Fuest.

Analysts had expected the indicator, which is based on a survey of about 7,000 executives to climb to 111.3 points this month. This would have been its highest level since July 2011.

But Trump's protectionist economic plans along with the possibility of fraught Brexit negotiations and a slew of unpredictable elections across Europe, including in Germany, have fueled concerns in boardrooms across Europe's biggest economy.

"As a country intertwined with the rest of the world, Germany relies on open markets and free trade," German Economic Affairs Minister Sigmar Gabriel said after presenting the government's annual economic report to the cabinet.

"The marked global tendency towards protectionism as set out in the Brexit decision and the statements by the new US president are going the wrong way," said Gabriel. "Isolation only makes us all poorer."

Both Britain and the United States are key destinations for German exports, with the US having emerged last year as Germany's biggest export market.

Gabriel insisted that the German economy, which is also the world's leading export nation, remained in a very good shape.

However, the new government economic forecast sees the country's growth rate slowing to 1.4 per cent this year from 1.9 per cent in 2016, which was its strongest expansion rate in five years.

The Ifo report also showed executive leaders in all major business sectors, including the key manufacturing industry, becoming less optimistic at the start of the year.

"With trade looking at yet another difficult year, the German economy will continue to be highly dependent on domestic demand, on the back of low interest rates and the strong labour market," said ING Bank economist Carsten Brzeski.

The government's annual economic report sees employment hitting a record high of more than 43.8 million this year with another 320,000 joining the workforce. The 2017 unemployment rate is forecast to be 6 per cent.

The report also predicted wages to grow by 2.5 per cent this year with domestic demand rising by 1.6 per cent.

German exports should grow by 2.8 per cent this year, slightly higher than in 2016.

But a 3.8-per-cent gain in imports this year means that the net trade effect will be negative, the government report said.

Dragging the Ifo business climate indicator down in January were the industry leaders' economic expectations for six months down the track, which slumped from a reading of 105.5 in December to 103.2 this month.

However, the executives' assessments of current business conditions edged slightly higher to 116.9 points this month from 116.7 points in December.

GNA