0532 GMT February 25, 2020
Output rose 0.3 percent from July, despite a big drop in energy, compared with economist estimates for no change. The outlook for Europe’s largest economy remains uncertain, with production down four percent on the year and shrinking factory orders signaling that no real turning point is in sight.
The euro slightly extended its gain against the dollar after the report, and was up 0.1 percent to $1.0982 as of 8:29 a.m. Frankfurt time.
The numbers come on the heels of a report that showed factory orders continuing to fall. The malaise has started to spread to other parts of the economy, raising the risk of a recession in Europe’s largest economy. Manufacturing, which accounts for some 23 percent of output, dropped an annual 4.9 percent in the second quarter.
The industrial-led downturn is dragging on the broader euro area as well, prompting another round of monetary stimulus from the European Central Bank and pleas to the German government to deploy fiscal stimulus.
“Whether the economy as a whole shrank in third quarter depends on how services have performed. Leading indicators point to further weakness ahead and the damage appears to be spreading to services. The main sources of the malaise — huge uncertainty over trade and slowing global investment — are not going away.”
There’s been little in the way of good news for the region’s manufacturers.
The US is set to levy import duties on billions of dollars of European products starting next week, and Chinese officials have signaled they’re increasingly reluctant to agree to a broad trade deal pursued by President Donald Trump. Meanwhile prospects of a Brexit deal have faded after talks stalled and European leaders cast doubt on reaching an agreement in time for the Oct. 31 deadline.
“Despite the recent slight revival, industry remains mired in a downturn,” the Economy Ministry said in a statement Tuesday, pointing to particular troubles in the auto sector. “Weakness in demand persists.”
Germany’s economy has had periods of volatile growth in the past and a technical recession — two quarters of contraction — isn’t unique. The risk is that all of the external pressure continues to mount, creating a deeper and more long-lasting slump.
A measure of investor confidence for Germany is at its lowest level in a decade, while German bond yields have fallen far below zero.
Economists predict growth of just 0.5 percent this year. That would be the weakest full-year expansion since 2013.
The ECB last month cut interest rates and announced it would restart bond purchases to help the euro zone. President Mario Draghi coupled that with a demand for government support. He said its “high time” for fiscal policy to play its part, and nations with space to act — such as Germany — should do so.