German Investor Morale Slumps

The mood among German investors tumbled in June to its lowest level since September 2012, a survey showed on Tuesday, weighed down by concerns about the impact of an escalation in a trade dispute with the United States.

The ZEW research institute said its monthly survey showed economic sentiment among investors fell to -16.1 from -8.2 in May. This was a steeper drop than the Reuters consensus forecast reading of -14.0.

A separate gauge measuring investors’ assessment of the economy’s current conditions edged down to 80.6 from 87.4 last month. The Reuters consensus forecast was for a reading of 85.0.

“The latest escalation in the trade dispute with the United States and fears about policies by the new Italian government that could destabilize the financial system are leaving their mark on the outlook for Germany “, ZEW president Achim Wambach said in a statement.

Meanwhile, the OECD said on Tuesday that Germany’s economic upswing remains strong despite the threat of protectionist US trade policies and the government should use its budget surplus to increase investment to help to reduce its large current account surplus.

“Economic growth is robust and prosperity is high,” the Organization for Economic Cooperation and Development said in its country report on Germany. It expects Europe’s largest economy to grow by 2.1% this year and next.

The OECD predicted that German exports would grow by 4.5% in 2018 and 2019 despite the threat of rising trade barriers and US President Donald Trump’s tariffs and sanctions policies.

“The current account surplus remains large,” the OECD said, echoing similar criticism from the European Commission and the International Monetary Fund.

The German government should implement structural reforms to boost long-term, socially inclusive and environmentally friendly growth, the OECD said. Such reforms should include public investment and a reduction in incentives for household saving, it said, which could boost household and domestic spending.

The OECD welcomed relatively high wage agreements recently settled in Germany. “Wages are growing moderately,” it said, adding that the latest deals point to some acceleration in wage growth. “However, rising inflation, primarily due to higher oil prices, is eroding real wage gains to some extent,” the OECD said.