The U.S.-China trade war continues to erode business confidence in Germany. Business confidence in the country, home to Europe’s largest economy, fell to its weakest level in almost seven years as a deepening manufacturing slump put the German economy on the  verge of a recession. The Bundesbank calculates that German GDP contracted in the second quarter and projects that it could shrink again in the third quarter that ends on September 30.
The Ifo business climate index fell to a worse than expected 94.3 in August, marking its fifth straight decline. Problems that were initially focused in the automative sector are now reaching chemical and electrical engineering companies. And the slump is starting to pinch service companies that work with manufacturers in sectors such as logistics.
Meanwhile in the currency markets, the Chinese yuan continued its retreat against the U.S.dollar with the offshore yuan down 0.4% to 7.1624 to the dollar. The offshore yuan is now down 1.8% after an eight-season losing streak.
A depreciating yuan offsets the effects of higher U.S. tariffs.  Mitul Kotecha, a senior emerging markets economist at Toronto-Dominion Bank told Bloomberg: “As long as China can ensure that yuan weakness is well controlled i.e. it does not provoke strong outflows, expect to see further depreciation in the currency.”
