0937 GMT January 25, 2020
While an uptick in business expectations and a jump in factory orders have raised the prospect of stabilization, the evidence that manufacturing malaise has begun to affect the domestic economy is mounting. Growth data this week might show Germany either in a recession or just skirting one, underlining that view, Bloomberg reported.
“Spillovers are affecting domestic demand,” said Davide Oneglia, an economist at TS Lombard in London. “Once the train is set in motion, it’s difficult to stop.”
German policy makers have tended to downplay the slowdown that engulfed the Europe’s largest economy in the summer of 2018 as a temporary problem that would be overcome once peace returned to global trade relations and carmakers put their emissions scandal behind. That rose-tinted view has been repeatedly shaken, most recently by forecasts last week showing growth likely to stay muted for the next two years.
The economy probably dipped into a technical recession in the third quarter, shrinking 0.1 percent, according to just over half of the 39 forecasts in a Bloomberg survey of economists. The rest predict no growth, aside from just three anticipating narrow expansion of 0.1 percent. Those data will be released on Thursday.
Such downbeat news would contrast with small and belated signs of improvement in manufacturing, where the economy’s troubles originated.
Orders posted a rare solid gain in September, exports as well as export prospects improved, and the outlook for carmakers turned positive in October after nine months of decline. Investor confidence also increased, with an expectations gauge at the highest in six months.
A recovery at factories might turn out to be too little too late. The labor market is seeing signs of weakening, damping consumer confidence that — once shattered — may take time to recover.
Households’ assessment of the economic future is already at a seven-year low, the financial outlook is deteriorating rapidly and fears of unemployment are rising along with an actual increase in joblessness.
“Given the importance of consumption as a growth driver, fueled by employment, you might see a trend of more permanently slower growth projecting itself into the future,” said TS Lombard’s Oneglia.
“We may have seen a marginal improvement in manufacturing but the outlook is still uncertain, and being optimistic is just wrong.”