VW Scandal and Refugee Crisis Shake Germany Ahead of GDP Data

German Economy Navigating VW Scandal and Refugee Debate

The U.K. Chancellor George Osborne described the economies of Germany and the United Kingdom as the beating heart of Europe. There is no doubt that the German economy has been the growth engine of the European Union but as the U.K. continues to show a steady pace, the engine is having some internal issues. The Volkswagen emissions scandal has dealt a massive blow to one of the strongest sectors of German manufacturing.

The stock market has been rising boosted by the quantitive easing program launched by the European Central Bank in March. Keeping rates low has made investors seek returns in the stock market. The rise of the USD versus the EUR has also made it easier for European companies to turn previous foreign exchange losses into gains as a weak EUR gives exporters a competitive advantage.

The German government expects growth of 1.7 percent for this year and 1.8 percent for 2016. The growth forecasts have been cut citing the negative impact of the slowdown in China and emerging market rout which will translate in lower German exports.

Merkel Faces What Could be Her Biggest Political Challenge

Politically Germany was the standard of stability. German Chancellor Angela Merkel had an excellent track record of guiding the nation through several intense debates. It has to be said that most of the debates were triggered by external factors such as the Greek crisis. This time around the refugee crisis has given detractors of Merkel enough political and social ammunition to stage a political attack that threatens to oust the longest serving leader in Europe. Germany had remained immune to the social backlash that was seen in France, Spain, Italy and Greece. The patient is showing signs of infection and if it wasn’t for Merkel at the helm the outcome would be the same as those other examples as voters decided to change leadership by electing a new party.

German events to watch this week:

Friday, November 13
2:00am EUR German Prelim GDP q/q

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza