News ID: 257895
Published: 1027 GMT August 27, 2019

Export slump pushes German economy to brink of recession

Export slump pushes German economy to brink of recession
BLOOMBERG

A collapse in exports pushed Europe’s largest economy to the brink of recession in the second quarter.

In a sign that an increasingly hostile trade war between the US and China is at least partially to blame for Germany’s deepening manufacturing malaise, shipments abroad declined 1.3 percent, the most in more than six years. That led to a contraction in total economic output — the second over the past year, Bloomberg reported.

Weaker global trade and upheaval in the auto industry are dragging Germany’s economy deeper into trouble, with repercussions for the broader euro-area economy.

Plunging business confidence and warnings from some of the country’s biggest companies are adding to concerns about the outlook and piling pressure on Chancellor Angela Merkel to provide fiscal stimulus.

Collateral damage from a US-inflicted trade conflict could soon intensify. President Donald Trump threatened to impose tariffs on European car imports earlier this month and labeled the EU “worse than China.” In an attempt to defuse tensions, Merkel said Monday she wants the bloc to start trade talks with the US

The 0.1 percent contraction in the second quarter matched the initial estimate earlier this month. Net trade subtracted 0.5 percentage point from total output, more than offsetting gains in private as well as government consumption. Construction shrank after strong growth at the start of the year, and investment contracted slightly.

The euro was little changed after the report and traded at $1.1110 at 9:28 a.m. Frankfurt time. Expectations that the European Central Bank will respond to a slowdown across the euro area have pushed the single currency lower and boosted bonds. German 10-year yields have been below zero for the past four months.

 

Deteriorating outlook

 

German companies including Henkel and Continental have blamed geopolitical uncertainty and trade for a weaker outlook. Many firms have highlighted difficulties in predicting earnings prospects.

Adding to the challenge, weakness in manufacturing is starting to spread into other industries, according to Clemens Fuest, president of the country’s Ifo institute. The think tank’s closely watched business-confidence indicator slid to the weakest level in almost seven years in August.

The economy’s disappointing run has amplified calls for fiscal stimulus. While the finance ministry is studying options — to be deployed in case the crisis worsens — so far, the government has defended its policy of a balanced budget.

With private spending still relatively robust thanks to a solid labor market, the Bundesbank has also cautioned against any knee-jerk reactions to a downturn driven by external demand and following years of strong growth.

Jens Weidmann, the institution’s president, insisted over the weekend that “there’s no reason to panic.” He also sought to lower expectations for a big package of measures from the ECB, arguing against a new round of quantitative easing.

Policy makers are meeting on Sept. 12 and are widely expected to at least cut their deposit rate deeper below zero.

   
KeyWords
 
Comments
Comment
Name:
Email:
Comment:
Security Key:
Captcha refresh
Page Generated in 0/0700 sec