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The Munich-based Ifo economic institute said on Thursday its
business climate index fell for the second month in a row to
102.8, below a Reuters consensus forecast of 103.0.
"Firms were less satisfied with their current business situation
and less optimistic about the months ahead," said Ifo chief
Clemens Fuest. "Growing global uncertainty is increasingly
taking its toll on the German economy."
Consumption and state spending have been the main growth drivers
in Germany as exports weaken. The dynamic domestic economy is
expected to continue propelling an upswing seen entering its
10th year in 2019.
But the risk of a no-deal Brexit, trade tensions and a lack of
skilled workers are weighing on the growth outlook for Europe's
largest economy.
Ifo economist Klaus Wohlrabe said it would be difficult for
Germany to meet the 0.6 percent growth forecast for the fourth
quarter given by the institute in its autumn report. The
institute, however, is sticking to a full-year growth forecast
of 1.7 percent.
"The golden autumn for the German economy is not materializing,"
Wohlrabe told Reuters, adding that pessimism was spreading in
the auto industry where business expectations fell
significantly, burdened by stricter emissions tests.
The government said earlier this month it expected growth to be
slower in the third quarter, citing bottlenecks in the car
sector stemming from the introduction of new pollution standards
known as WLTP as a factor.
WEAK PHASE
The government has also lowered its economic growth forecast for
this year to 1.8 percent from 2.3 percent previously. It expects
the economy to expand at the same pace in both 2019 and 2020.
The economy grew 2.2 percent last year.
Thomas Gitzel of VP Bank said worries about Italy's spending
plans were also clouding the outlook.
"The German economy is sliding into a weak phase," he said.
"Trade disputes, tough Brexit negotiations and concerns about
Italy's state finances are unnerving companies."
Financial markets have reacted negatively to Italy's
expansionary budget, with bond yields rising to multi-year highs
as investors fret over Rome's defiance of EU fiscal rules and
the sustainability of its debt mountain -- the highest in the
euro zone after Greece.
The European Commission has rejected Italy's 2019 budget deficit
target but Deputy Prime Minister Luigi Di Maio said his
government would not change the plan.
Still, economists think the German economy will keep growing
despite a weakening manufacturing sector and rising external
risks. Low interest rates, a weak euro and planned tax cuts to
help middle-income families should propel domestic demand.
"The uncertainty and the unpleasant gut feeling will continue,"
Carsten Brzeski of ING Diba wrote in a research note.
"At the same time, however, the present situation of the German
economy is still better than the recent stock market correction
might suggest."
(Additional reporting by Joern Poltz and Riham Alkousaa; Editing
by Paul Carrel and Helen Popper)
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