Investors consider an economic recession in Germany inevitable, according to economic research group Sentix.
Its index measuring current conditions and expectations for Europe’s largest economy fell to its lowest level in almost a decade. A similar gauge for the eurozone dropped to the lowest since 2014.
The data suggests that de-escalating tensions between the US and China at last month’s Group of 20 meeting in Japan has failed to inspire investors.
Germany’s high dependence on exports and the Chinese market means ever greater uncertainty until the customs dispute is resolved.
While industrial production showed a monthly increase in May, performance is still down in annual terms.
“[The] industrial data suggests that, at least for the second quarter, the German economy is running out of powerful growth engines,” said Carsten Brzeski, chief economist at ING Germany. “The data was not bad enough to panic, but definitely not good enough to lean back and enjoy the summer.”
“The high dependence on exports and the Chinese sales market is increasingly becoming a burden and the trade dispute hangs like a sword of Damocles over the one-time poster boy of the euro region,” Sentix director Patrick Hussy said of Germany.
“A recession looks unavoidable,” he said of Europe’s largest economy.
Mr Hussy said an apparent de-escalation between the US and China at the G20 summit in Japan had given rise to hope that the economy’s downward trend could be stopped, but added that despite this, investors “are once again giving the economy a thumbs-down”.
Mr Hussy said the longer no agreement was found in the trade dispute, the more economic confidence suffered.
Elsewhere in the euro area, economic news has been equally subdued. A monthly manufacturing sentiment index in France dropped from 99 to 95 in June.
Meanwhile, banks-led European shares closed slightly lower yesterday as Deutsche Bank slid despite a major restructuring move, while fading hopes of a sharp interest-rate cut by the US Federal Reserve weighed on broader markets.
The pan-European Stoxx-600 index ended marginally lower, with all major indices in the red.
Shares in Deutsche Bank, which had jumped nearly 4% in morning trade, after the German lender announced one of the biggest investment bank overhauls since the aftermath of the financial crisis, reversed course to close 5% lower as investors questioned the bank’s restructuring targets.
Much of the global stocks rally since June has been spurred by expectations of an accommodative monetary policy by major central banks to tackle slowing growth as the damaging trade war between the US and China takes its toll.
But robust US jobs data last Friday has lowered hopes of a sharp rate cut by the US Federal Reserve, even though a reduction is still expected.
US investment bank Morgan Stanley’s decision to reduce its exposure to global equities, due to misgivings about the ability of policy easing to offset weaker economic data, also weighed on investor sentiment.
However, US Treasury debt yields fell, retreating from their gains on Friday in response to the country’s employment data.
- Bloomberg and Reuters