ifo survey: Sentiment deteriorating amid trade worries

Given the large number of economic risks, German companies assess developments of the months ahead in a more sceptical light. This is revealed in the survey conducted by the ifo Institute in October. The trade dispute between the USA and China, the risk of a messy Brexit and the populist government in Italy which is on a confrontational course have become an increasing source of concern for companies. Nevertheless, the mood in the German economy remains generally upbeat. After intermittently rising in August, the current readings for economic expectations are still higher than in the spring and are above their long-term average. There are therefore no signs of pessimism among companies.

The indicators from the manufacturing sector have recently fallen sharply, with sentiment particularly subdued in response to the international risks. In contrast, the booming construction and service industries remain key cornerstones of the German economy. Low interest rates, a buoyant labour market and stable domestic demand are all currently ensuring a continuation of the economic upturn. However, the momentum has slowed noticeably compared with the first half of the year.

For 2018 as a whole, we continue to expect GDP growth of 1.7 percent. While less than in the previous year, this is still a comfortable growth rate. Next year, the growth rate is expected to decline to 1.4 percent which is roughly equivalent to the potential growth rate of the German economy.

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