German investor morale plunges on U.S. tariffs threat

By Michael Nienaber

BERLIN (Reuters) - The mood among German investors deteriorated in March, a survey showed on Tuesday, reflecting growing uncertainty about the damage Europe's largest economy could suffer if U.S. import tariffs escalated into a bitter trade conflict.

U.S. President Donald Trump has announced import tariffs of 25 percent on steel and 10 percent on aluminium, which take effect on Friday. That has raised concerns about tit-for-tat measures that could spiral into a global trade dispute and hurt the economic recovery.

The ZEW research institute said its monthly survey showed economic sentiment among investors dropped to 5.1, its lowest reading in a year and a half, from 17.8 in the previous month. The consensus forecast in a Reuters poll was for 13.0.

"Concerns over an U.S.-led global trade conflict have made the experts more cautious in their prognoses," ZEW President Achim Wambach said.

The stronger euro is also hampering the business outlook of German exporters, Wambach said, adding that the outlook for the economy as a whole remained "largely positive" despite the risks.

A separate gauge measuring investors' assessment of the economy's current conditions edged down to 90.7 from 92.3 last month. That was slightly higher than the 90.0 predicted in the Reuters consensus forecast.

Germany's economy ministry has warned that any escalation of Trump's tariffs on metal imports into a full-blown trade war could damage the global recovery, although the tariffs themselves should have only limited effect.

But Trump has also warned the European Union it would get hit with a "big tax of 25 percent on their cars" for not treating the United States well when it comes to trade.

This has alarmed Germany's carmakers, who have urged policymakers to avoid a trade war "at all costs". The United States is one of the biggest markets for German cars, which are the country's biggest source of export income.

Economists estimate that a full-blown trade war between the United States, China and Europe could cut economic growth in Germany by up to 1 percentage point.

(Reporting by Michael Nienaber, editing by Larry King)