News ID: 256409
Published: 1121 GMT July 27, 2019

German economy on the brink as Merkel's manufacturing sector slumps

German economy on the brink as Merkel's manufacturing sector slumps
ODD ANDERSEN/AFP

Germany's economy is quickly declining despite the belief of Angela Merkel's team there is no crisis striking her country as the German manufacturing sector continues to contract with no signs of recovery, economic expert Shweta Singh warned.

The global macro managing director at TS Lombard told Bloomberg that as Germany's manufacturing sector continues to decline, the services sector now also risks contraction and could cause a deeper economic crisis under Chancellor Angela Merkel.

Singh warned Germany's growth rate has been significantly low since 2017 and it is unlikely to recover immediately.

Echoing European Central Bank (ECB) President Mario Draghi's warning on Thursday, Singh said, “Germany just about avoided a recession towards the end of last year.

“Growth this year will remain quite weak so consensus expectations for Germany, for example, have been consistently revised downwards.

“And you’re looking at growth of just north of one percent which is a significant down take from where Germany was just in 2017 growing at 2.6 percent.

“And one percent is way below Germany’s potential growth rate.

“And at the same time, the headwinds that Germany faces and the global economy faces is unlikely to disappear immediately."

She added, “What I’m talking about and it’s something that Draghi hinted at quite clearly yesterday is that the manufacturing sector in Germany is suffering tremendously.

“We have seen manufacturing in contraction for just over three quarters now.

“Consumers are the only bright spot and construction as well but because Germany is such an export-orientated and such a manufacturing-focused economy, we can see the signs of weakness from manufacturing spreading onto the services sector.”

On Thursday Mario Draghi admitted the situation was getting ‘worse and worse’ and offered a gloomy prognosis for the economies of both Germany and Italy.

“We still see the risk of recession being pretty low, all in all,” he said, "but jobs are a lagging indicator.”

Nevertheless, he admitted, “On the inflation front we don’t like what we see.”

It comes as eurozone government bond yields began to reverse some of the rises seen after Thursday's European Central Bank meeting, where policymakers left rates unchanged but opened the door to more easing, underwhelming investors who had hoped for more.

Draghi told reporters "this (economic) outlook is getting worse and worse", increasing the need for stimulus. But investors latched on to his comment that the ECB wanted to see more projections of how the economy was performing before taking action.

Commentators were quick to point out that Draghi has delivered everything but the cut — signaling both tiering and the resumption of asset purchases — and eurozone bond yields began to retreat from the rises seen in both the core and the periphery.

German 10-year bond yields were around one basis points lower at -0.373 percent, heading back down towards the record low of -0.422 percent, recorded on Thursday.

Finance Minister Olaf Scholz told Bloomberg Television on Thursday, minutes before Draghi’s press conference, that he has no plans to spend more money because it’s not “necessary or wise to act as if we were in a crisis.”

 

 

 

   
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Resource: Bloomberg
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