The Nomad Economist
Premiered Jul 23, 2022
Not Just DeutscheBank – The Whole German Economy is Slumping into Recession
Germany’s Federal Statistics Office announced recently that Germany’s GDP contracted by 0.1% quarter-on-quarter in the April-to-June period. This has raised concerns that the country may be headed for a recession.
Economists define a recession as two consecutive quarterly contractions. The German economy is on a knife-edge between a recession and small growth.
Like Japan, Germany is famed for making automobiles and making that a large part of their overall economy, so when the demand for cars drops significantly, the whole German economy goes down the drain.
Imagine what driverless and electric cars will do to the German economy. Besides, German cars have now lost their good reputation. They are expensive to fix are over-engineered, and many have plastic parts that break in a few years. When the U.K. and U.S. tariffs go into effect , Germany’s auto industry will be crippled and unable to repair itself.
This following on from the fake emissions and autotests the manufacturers submitted, resulting in jail time for many. From another side , the demographic crunch is putting significant financial and manpower strains on the German economy. And every day it gets a little bit worse.
Add to this, two million immigrants and counting are using many resources without contributing.
The Euro has fallen to its weakest level in almost seven years as weakening manufacturing puts Europe’s largest economy into recession. On top of this bad news, it appears the European Union is finally moving towards crunch time with the U.K. Boris Johnson has taken the stand the U.K. will exit the union, deal or no deal.
Clearly, low-interest rates and easy money have not cured Europe’s problems, and the area continues to face growing anti-EU sentiment. Early this year or later this year, it will happen. German businesses are increasingly pessimistic about the economic outlook.
The head of Ifo, Prof Clemens Fuest, forecasted that Germany’s GDP would shrink this quarter, having already contracted by 0.1% in the previous three months. That would put the economy into a recession for the first time since 2013. “Everything we see at the moment means there are ever more indications of recession in Germany, meaning two-quarters of negative growth,” he told CNBC.
Germany’s industrial sector has been badly hurt by the US-China trade war, with exports falling in the last quarter. Manufacturing output has contracted, as factories have been hit by falling orders. The slowdown has now spread to Germany’s service sector. Companies in the industry have reported a deterioration in business conditions, making them more skeptical about growth prospects.
“This is terrible news indeed,” Fuest said. “It’s not just manufacturing where the decline continues, but we now see that the weakness is really affecting the services sector, which is large and important for the German economy.” Frederik Ducrozet, a senior economist at Pictet Asset Management, said Germany’s manufacturing sector was already in recession territory, which has led to “spillover” effects in the rest of the domestic economy this summer.
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