Trade war fears weigh on investor sentiment in Germany

By MarketsAssociated Press

The possibility of a U.S.-led trade war is worrying investment professionals in export-oriented Germany, Europe's largest economy.

The ZEW index of economic sentiment sagged to 5.1 points in March from 17.8 points in February. The main reason was a more pessimistic outlook for coming months, while assessments of how things are currently slipped by less.

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The survey is based on interviews with investment analysts on how they see things shaping up in Europe's largest economy.

The ZEW research institute in Mannheim said Tuesday that "concerns over a U.S.-led global trade conflict have made the experts more cautious in their prognoses. " A recently stronger euro, which can hurt exports, also is weighing on sentiment.

New import taxes on steel and aluminum announced by U.S. President Donald Trump have raised concerns that other trade partners, including the European Union, may retaliate. The issue is of particular concern in Germany, where the economy runs on exports of automobiles and machinery. Exports were 46 percent of annual economic output in 2016, according to World Bank figures. The comparable figure for the United States was 12 percent.

The ZEW survey represents sentiment among market professionals rather than among industrial executives. It was the first sentiment survey published in the eurozone since Trump announced the tariffs. Looking ahead, the German Ifo institute survey of business executives is due on Thursday and the broader European economic sentiment and business climate indicator next week on March 27.

The head of the European Central Bank, Mario Draghi, has said that the initial impact of the proposed tariffs on steel and aluminum would be small. The impact on the economy of the 19 countries that use the euro currency, however, would be much greater if Trump's move leads to retaliation by other trade partners and restrictions expand to other categories of goods. Trump has tweeted that if the EU retaliates the U.S. could tax imports of European cars.

The EU has published a list of goods it could target. They include sweet corn, peanut butter, orange juice, cranberries, bourbon, cigars, chewing tobacco, makeup, jeans, flat-rolled steel, leather shoes, sailboats and motorcycles.