German economic sentiment continues to decline on ongoing trade tensions

German investor sentiment continued to decline in July as ongoing trade tensions and geopolitical uncertainties weigh on expectations, research institute ZEW said on Tuesday.

The institute’s indicator for economic sentiment fell to -24.5 points, dropping 3.4 points on the previous month, following a significant 19-point drop in June.

The assessment of the economic situation in Germany recorded the first negative reading since 2010 at -1.1 for July, falling by 8.9 points. The indicator’s long-term average is 21.8 points.

Persistent trade pressures between the US and China have had a knock-on effect has impinged on attitudes towards the German economy, according to ZEW president Achim Wambach.

He said: “In particular the continued negative trend in incoming orders in the German industry is likely to have reinforced the financial market experts’ pessimistic sentiment.”

Recent conflict between the US and Iran and a lack of direction from ongoing Brexit negotiations have further served to exacerbate bearish sentiment.

Softening was also reported for eurozone economic sentiment and current economic situation this month, falling 0.1 points to -20.3 and 6.9 points to -10.6 respectively.

The perspective from analysts at Oxford Economics suggests that these negative readings are at odds with recent Purchasing Managers Index (PMI) data, which had appeared more resilient.

This indicates that high levels of uncertainty are diminishing investor confidence, which could lead to growth forecasts revised down for the second half of the year.

“Overall, we expect net trade’s contribution to be limited in Q2 given the weak April numbers. Encouragingly, the better-than-expected data show eurozone exporters’ resilience,” said the analysts.

“But amid trade tensions and weak sentiment, the outlook for exporters in the second half of the year remains challenging.”