Clouds grow over German economy after stocks hit bear market

Worries are growing about the strength of the German economy, Europe's largest, after a key indicator suggested fears about trade wars and Brexit are hitting business activity and after the country's main stocks index slid into a bear market.

The Ifo Institute said Tuesday its business confidence index dropped to 101.0 points for December from 102.0 points in November as managers' view of both their current circumstances and their prospects for the next six months fell.

That's the fourth drop in a row and the lowest reading in 27 months for the index, which is based on responses from some 9,000 firms in manufacturing, services, trade and construction.

Uncertainty over the economy is growing just as the European Central Bank last week confirmed it will end its 2.6 billion-euro ($3 billion) stimulus program conducted through bond purchases. The ECB says the economy is strong enough to halt the stimulus, but is keeping other support measures such as record low interest rates in place. The ECB has indicated rates will not rise before fall 2019, and has indicated it could delay any first hikes in case of unexpected economic trouble.

Germany's economy shrank 0.2 percent in the third quarter and there are increasing worries about the effect of multiple issues, like Britain's decision to leave the European Union and new tariffs from the U.S. administration of President Donald Trump. The third-quarter contraction was largely blamed on a one-time slump in car sales as Daimler and Volkswagen faced bottlenecks getting cars certified for new, tougher emissions standards.

Economist Carsten Brzeski at ING Germany said that "the German economy has entered a dangerous vicious circle of too many one-off factors, dwindling global growth and political risks finally leaving their mark." That was despite continuing strong domestic demand from consumers, who are enjoying cheaper fuel prices and low unemployment.

He wrote in an email that "that the risk of the unimaginable — a technical recession (two consecutive quarters with negative growth) — has increased."

Andrew Kenningham, chief global economist at Capital Economics, said there was "every reason" to expect growth to rebound in the last three months of the year. "However, this survey adds to evidence that the slowdown in Germany, and the eurozone more widely, is more than just a soft patch."

Kenningham said risks were mounting to the firm's forecast that growth would rebound to 1.8 percent next year from 1.5 percent this year.

German's DAX 30 stock index traded at 10,743 on Thursday, down 0.3 percent on the day. The index, which contains big corporate names such as Siemens, Deutsche Bank, Bayer, BASF, and BMW, entered bear market territory on Monday, defined as a decline of 20 percent or more from its January peak.

Other indexes in a bear market include the Russell 2000, a small-cap index in the U.S., as well as benchmarks in mainland China. In Europe, Italy and Spain's main indexes are in bear markets.


Rising contributed from Berlin.