Germany teetering toward recession
U.s.-china fight, Brexit taking toll
BERLIN — Germany, Europe’s industrial powerhouse and biggest economy, with companies like Volkswagen, Siemens and BASF, might be entering a recession, according to a gloomy report from the country’s central bank Monday — a developmentthatcould haverepercussionsforthe restoftheeurozoneandthe United States.
A technical recession is defined as two consecutive quarters of negative growth, and Germany saw a 0.1 percent drop in the April-tojune period. In its monthly report, the Bundesbank said that with falling industrial production and orders, it appears the slump is continuing during the July-to-september quarter.
“The overall economic performancecoulddecline slightlyonceagain,”itsaid. “Central to this is the ongoing downturn in industry.”
Deutsche Bank went further Monday, saying that“weseegermanyina technical recession” and predicting a 0.25 percent drop in economic output this quarter.
Germany’s economy is heavily dependent on exports, and the Bundesbank said the trade conflict between the U.S. and China and uncertainty about Britain’s move to leave the European Union have been takingtheirtoll.boththe U.s.andchinaareamong Germany’s top trade partners,withbritainnotfar behind.
Also, Germany’s auto industry — with giants like Volkswagen, Daimler and BMW — faces challenges adjusting to tougher emissions standards in Europe and China and to technological change as demand grows for electric vehicles.
Germany is also home to such major corporations as Bayer,
Merck, Linde and the Thyssenkrupp Group.
The Bundesbank report is in line with a consensus among economists that “the risk of another quarter flirting with recession is high,” said Carsten Brzeski, the chief economist for ING bank in Germany.
“The bigger picture is that the trade conflicts and uncertainty are finally starting to hurt one of the most open economies,” he said.
The labor market in Germany remains strong, with unemployment around historic lows, but if economic concerns prompt consumers to stop buying — or at least to put off purchases — that could start to drag down growth in countries that count on Germany as a market for their exports.
“If this stagnation/recession continues and leaves more lasting marks on the domestic economy, the rest of the world will also notice,” Brzeski said. “Just think of weaker German demand for foreign goods or a German slowdown dragging the rest of the eurozone down — it could be a bit of a boomerang effect for the U.S., showing that no one really wins trade wars.”
Amid the trade conflict between Washington and Beijing, the increasing prospect of Britain leaving the EU without an exit agreement, and growing fears that countries might race to devalue their currencies, the monthly ZEW poll of German investors fell to its lowest level last week in over 7½ years.
Germany is still expected to post modest growth this year, with the Bundesbank predicting 0.6 percent and the government 0.5 percent growth, but its slowdown is starting to have an effect on the wider 19-nation eurozone, which last week announced that growth had halved in the second quarter to just 0.2 percent.
In response to the sluggish economies, the European Central Bank has signaled it is preparing a package of additional monetary stimulus measures, including a possible rate cut and bond purchases, which could be announced at its Sept. 12 meeting.