German business sentiment deteriorated to an 11-month low in March as firms were less optimistic about the months ahead due to fears of trade conflicts led by the US, survey data from the Munich-based Ifo Institute showed Thursday.
Elsewhere, the Purchasing Managers’ survey showed that the Germany’s private sector expanded at the slowest pace in eight months in March.
The business climate index dropped to 114.7 from 115.4 in February, Ifo said. The score was forecast to fall to 114.6.
According to Ifo, companies were slightly less satisfied with their current business situation, which nevertheless remained at a high level.
The current conditions index slid to 125.9 from 126.4 in the previous month. The reading was also below the expected level of 125.6.
Likewise, the expectations index came in at 104.4 in March versus 105.4 a month ago. The score came in line with expectations.
Clemens Fuest, Ifo President, said the threat of protectionism is dampening the mood in the German economy.
Flash data from IHS Markit showed that the composite output index fell to an eight-month low of 55.4 from 57.6 in February. The reading was also below the forecast of 57.0.
Although remaining solid overall, growth has now softened in each of the past two months after having reached a near seven-year high in January. Nonetheless, a reading above 50 indicates expansion.
The services Purchasing Managers’ Index came in at 54.2 in March, down from 55.3 in February and the forecast of 55.0.
Similarly, the factory PMI dropped to 58.4 from 60.6 in the previous month. The expected score was 59.8.
March’s PMI and Ifo surveys point to a softening of Eurozone growth as expected after such a strong run and which has not caused to change the upbeat GDP forecasts, Jennifer McKeown, an economist at Capital Economics, said.
But it certainly supports the European Central Bank’s cautious approach to policy normalization, particularly as the PMI price indices weakened too, the economist added.
The Ifo Institute said on Wednesday that Germany’s strong economic growth is set to continue in the months ahead, as demand for the country’s exports are expected to improve. Gross domestic product is forecast to grow 2.6 percent this year and 2.1 percent next year.