German economic sentiment hit by trade war woes, political uncertainty

German economic sentiment deteriorated more than expected in July as political uncertainty and worries about a trade war took their toll, according to the latest survey from the ZEW Center for European Economic Research in Mannheim.

The indicator of economic sentiment fell to -24.7 from -16.1, missing expectations for a reading of -18.9.

Meanwhile, the current situation index dropped to 72.4 this month from 80.6 in June, falling short of expectations for a reading of 78.1.

Achim Wambach, President of ZEW, said: "The current survey period has been marked by great political uncertainty. In particular, fears over an escalation of the international trade war with the United States have dampened the economic outlook. The positive news regarding industrial production, incoming orders and the labour market have been greatly overshadowed by the anticipated negative effects on foreign trade.”

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "An ugly headline, in contrast to yesterday’s more upbeat Sentix survey, signalling that German investors and market analysts currently are facing a perfect storm of external and domestic political risks, not to mention overall sluggish price action in the equity market.

"The details, however, were mixed. They show that investors’ inflation and short-term rate expectations fell further, but the outlook for Europe’s key equity markets improved slightly as did long-term rate expectations. Across industries, the crash in expectations for the auto and steel industries stand out, undoubtedly as a result of the global trade wars. Overall, sentiment declined across all major market sectors this month."