Germany’s Recession Fears

Three years into the euro zone debt crisis, the gravity-defying German economy has stalled and some fear it could fall into recession in the second half of this year.

Over the past week, Europe’s largest economy has been hit by a series of increasingly gloomy data releases, showing declines in manufacturing orders, industrial output, imports and exports.

In an unusually stark warning on Friday, the economy ministry said these figures and a sharp drop-off in business sentiment in recent months pointed to “significant risks” to Germany’s outlook.

Next Tuesday, gross domestic product data for the second quarter is expected to show modest growth of about 0.2 percent. But the danger of recession in the second half of the year is growing, leading economists say, at a time when Europe’s single currency bloc desperately needs growth from its economic powerhouse.

The slowdown carries risks for German Chancellor Angela Merkel, who will seek a third term in an election one year from now, and could influence public opinion on her crisis-fighting strategy especially if a nascent rise in unemployment accelerates.

“The German economy is losing momentum – there’s no doubt about that – and in the third quarter the economy will shrink compared to the second quarter,” said Joerg Kraemer, chief economist at Commerzbank.

“Things will go downhill from here. The German economy is not faring as badly as the rest of the euro zone but it can’t disconnect itself, especially as growth in China has slowed and continues to do so.”

Germany is known for its export-driven growth, but the euro crisis has hit its biggest market. Roughly 40 percent of the country’s exports go to its partners in the currency zone and 60 percent to those in the broader European Union.

China, one of Germany’s fastest growing markets representing roughly 7 percent total exports, is also slowing. Chinese data this week showed factory output rising at is slowest pace in three years, new loans at a 10-month low and export growth grinding to a halt.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

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