By Paul Carrel and Jörn Poltz
BERLIN/MUNICH (Reuters) - German business morale deteriorated in April, bucking expectations for a small improvement, as trade tensions hurt the industrial engine of Europe's largest economy, leaving domestic demand to support slowing growth.
The Munich-based Ifo economic institute said on Wednesday its business climate index fell to 99.2 in April from an upwardly revised 99.7 in March, the first rise after six straight declines. The consensus forecast for a rise to 99.9.
"March's gentle optimism regarding the coming months has evaporated," Ifo President Clemens Fuest said in a statement. "The German economy continues to lose steam."
Ifo sub-indices on current conditions and expectations fell in April.
Last week, Economy Minister Peter Altmaier said that Berlin expected gross domestic product to grow by 0.5 percent this year after an expansion of 1.4 percent in 2018.
The government had already cut its 2019 forecast in January to 1.0 percent growth from 1.8 percent previously. Long the euro zone's economic powerhouse, Germany is in its 10th year of expansion, but only narrowly avoided recession last year.
German exporters are struggling with weaker demand from abroad, trade tensions triggered by U.S. President Donald Trump and business uncertainty caused by Britain's planned departure from the European Union.
"Pessimism is increasing," Ifo economist Klaus Wohlrabe told Reuters. "The industrial sector is dragging down the German economy."
Late last month, German lighting company Osram cut its forecast for the fiscal year 2019, citing market weakness in the automotive industry, general lighting and mobile devices as well as a broader economic slowdown.
A delay to Brexit, which leaders from the remaining 27 EU countries granted Britain earlier this month, did not buoy German business morale.
"The uncertainty has receded slightly, but is still very high," Wohlrabe added.
In a fresh development in the trade difficulties unnerving German businesses, Trump said on Tuesday European tariffs facing motorcycle manufacturer Harley Davidson Inc were "unfair" and vowed to reciprocate.
The difficult trade environment means that Germany's vibrant domestic demand, helped by record-high employment, inflation-busting pay increases and low borrowing costs, is expected to be the sole driver of growth this year and next.
Germany's HDE retail association on Wednesday confirmed its forecast that sales would rise 2 percent this year, marking a 10th straight year of growth.
"The domestic economy remains a pillar of support," said Ifo's Wohlrabe.
However, the HDE added that although it did not yet have a forecast for 2020 sales, it expected the industrial slowdown to affect retailers.