Remarking on the latest Ifo index numbers, UniCredit's Chief German Economist Andreas Rees said that companies were in "wait, see and hope" mode.
"They wait and see whether U.S. President Trump imposes car tariffs and extends tariffs on Chinese goods. And, of course, exporters hope for the best," he said in a note Wednesday. "However, there is the non-negligible risk that German companies could be hit by a double whammy going forward ... Carmakers are getting less competitive in the U.S., while companies doing business in China may face headwinds caused by weaker growth impulses (possibly triggered by additional U.S. tariffs)," he said.
Economist Brzeski said in an export-oriented economy like Germany’s — in which the U.S. is still the largest export destination — the prospects of more complicated trade are creating concern. But, he said, Germany shouldn’t be worried.
“For now, the German economy clearly shows sign of fear but does not feel it. In fact, the fear factor is much bigger than the actual hard impact. Why? Currently, actual tariffs on aluminum and steel will not hurt the economy. And given traditional price insensitivity of German goods, even significant U.S. import tariffs on cars might not significantly affect demand; particularly as long as the euro remains weak,” he said.
He noted that simulations showed that the German economy would, not surprisingly, be hit by a fully-fledged trade war, somewhere in the range of 0.1 and 0.4 percent of its annual gross domestic product (GDP). “However, it is still in the German economy’s hand to reduce such a negative impact by increasing domestic investment and strengthening ties with other trade partners.”
Greg Peters, senior portfolio manager at PGIM Fixed Income, told CNBC’s “Street Signs” Wednesday that he believed Germany’s business climate “was OK but not as robust as it was a year ago.” However, J.P. Morgan economist Greg Fuzesi said in a note Wednesday that while the Ifo data was weaker than the latest PMIs, the “details look decent.”
“Taken together, both PMI and Ifo are signalling gross domestic product growth at a 2 percent pace at the start of the third quarter of 2018, but the messages about momentum are mixed across the two surveys,” he said.