US-led protectionist threats have clouded the growth outlook in Europe’s largest economy for months, contributing to a manufacturing slump and boosting fears that domestic demand will be undermined. European Central Bank (ECB) president Mario Draghi last week said he’ll inject fresh monetary stimulus for the euro zone unless the economy improves.
The drop in the Ifo index took the closely watched gauge to 97.4, its lowest level since late 2014. A gauge of expectations also worsened.
“It could get worse, maybe not much worse but a little,” said Ifo president Clemens Fuest in a Bloomberg Television interview. “It’s justified to at least postpone any tightening of monetary policy. But I don’t think further easing will help very much. Mario Draghi has rightly pointed out that governments need to use other instruments.”
Draghi told European Union leaders last week that a more expansionary fiscal policy may be needed should the euro-zone economy deteriorate, and has long called for structural reforms to bolster resilience.
While Bundesbank president Jens Weidmann expects an improvement in Germany in the second half of the year as exports recover, the signs so far remain mixed.
A purchasing-managers survey last Friday showed solid growth in services, but manufacturing remained in contraction. Investor confidence in the nation worsened dramatically this month.