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. Welcome to The Atlantis Report. 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.
He tweeted: Mikael Sarwe, the head of the market strategy at financial group Nordea, said the Ifo survey was giving a clear recession warning Fresh figures suggest that Europe’s biggest economy may be heading for a recession, as its growth slowed in the second quarter. Calls for more fiscal stimulus are growing louder, but the government sees no need for it. Amid a global economic slowdown, US-China Trade War, persistent trade tensions between the United States and the European Union, emerging markets weakness, a temporary increase in oil prices, and the risk of Brexit without a deal.
Britain’s departure from the E.U. without an agreement is also impacting the outlook for German manufacturers. The German economy is highly dependent on the car industry. If they can’t manage the transition to electric vehicles, then vast areas of Baden-Würtemberg and Lower Saxony are in big trouble and might become a rust-belt. There is a shortage of some critical skills that the companies need to fill urgently, in particular in I.T. The demographic crisis does not help. This could develop into a big problem. The Chinese have a new strategy to walk up the value chain and go from commodity manufacturing more into high-end areas. That is where Germany is today.
There is a risk that the Chinese government/economic complex could simply steamroll Germany and out compete or undercut our companies, leading to widespread unemployment. New figures show the U.S.-China trade war is hurting Germany — Europe’s economic motor. There is a global fallout to the trade war between China and America, and that’s reducing the demand for German cars. Plus the global warming issues have reduced demand for cars, especially diesel, so that’s also affecting the German car industry even further. Germany is already in a recession, and it’s going to get deeper with a no-deal Brexit. Hence Merkel’s recent flexibility towards Johnson. Germany, Europe’s largest economy and a key trade partner of both the U.S. and China. Exports amount to almost half the German economy — 47 percent, according to the World Bank — as its companies play a dominant role in global markets for luxury autos and sophisticated industrial machinery.
Supply chains from Germany extend into neighboring eurozone countries as well, while German profits are often invested in factories in places like Slovakia, Hungary, and Poland.All great when the trade is booming — but it means Germany remains more vulnerable than less open economies such as Portugal or France to a slowdown in global trade in goods and services. Germany has been an anchor of financial stability, while other eurozone members struggled with massive debt and deficits. The Eurozone grew by just 0.4% throughout 2018. The German economy is now vulnerable. A slowdown in international trade is the critical reason for Germany’s economic downturn. Germany’s export positioning makes it susceptible to any trade tensions; US-China & EU-US trade war.
Weakness shows the fallout from the trade war between China and America, two of Germany’s biggest trading partners. The United States will, in 2019, decide whether to raise tariffs on European cars. China is another important factor. It’s Germany’s third-largest export market. China’s economy, a key engine of global growth in recent years is in sharp slowdown due to trade issues with the United States. German Automobile manufacturer, Volkswagen, has been hurt by weaker sales in China. Trouble in Europe’s largest economy, Germany, will deepen worries about slower global growth in 2019. Risks negatively impacting the global outlook include the ongoing US-China trade war and the impact of U.S. interest rate hikes on emerging markets, and the U.S. Dollar. Europe’s biggest economy is going through a soft patch as its export-oriented manufacturers cope with trade friction, struggling car industry, and uncertainties over Britain’s planned departure from the European Union.
In its tenth successive year of growth, the economy has been relying on healthy consumption as exports weaken, which resulted in a second-quarter GDP contraction of 0.2 percent. Particularly the strength of private consumption remains important anti-recession insurance for the economy. From the past year, Europe is facing a lot of crises just because of the Brexit case. Many of the countries are being affected by the current situation, and officials of different countries are waiting for the situation to resolve on an immediate basis.
Germany seems to have been adversely affected by global legislative issues and potential forthcoming issues with foreign exchange. The vehicle business, which adds up to a large piece of the assembling segment, has backed off inferable from an absence of worldwide interest and development joined with issues over the outflows and administrative changes that have been acquired as of late. As Germany is the biggest economy inside the Eurozone, this is a genuine worry for the cash, and this is the reason we saw the Euro debilitating against both the Pound and the U.S. Dollar amid exchanging sessions.
Along with this issue, Italian banks are also under immense pressure. Italian banks have by and by gone underweight after reports that the European Central Bank has told their moneylenders that they should cover all their terrible credits inside the following seven years. This implies the banks included will likewise need to expand their capital sums, and this made various Italian banks lose an incentive on their offer costs. Just Monte Dei Paschi di Siena has uncovered its financial record to the ECB with the others still yet to go with the same pattern. Inflation is a crucial worry for any Central Bank and with swelling having fallen since November 2018, this could dishearten the European Central Bank from rolling out any improvements to their current money related approach . Yet in the event that anything this could cause Euro shortcoming as it implies that as swelling is falling .
Then this means the ECB won’t raise financing costs from their memorable low at any point in the near future. This clearly shows that the foreign exchange market will be affected in the coming days as well. Germany’s economy is on the brink of recession , after business confidence plunged to its lowest level in seven years. The Ifo Institute, a Munich-based research group, said: “Worry lines among German business leaders are getting deeper and deeper.” Its monthly confidence index fell to just 94.3 points in August, down from 95.8 in July, the weakest reading since November 2012.
In the latest sign that Europe’s largest economy is struggling, the survey of nearly 10,000 German companies found that managers were gloomier about the current economic situation and more pessimistic about the outlook over the next six months. Western Europe hasn’t been immune to the global economic slowdown currently underway. Germany, with its export-oriented economy, is one of the countries that has been most affected. ING Chief Economist Carsten Brzeski said that the Q2 drop in output came as no surprise. “The point is that the German economy has more or less been in a state of stagnation since the summer of 2018. “This in itself does not mean that there’s reason to panic, but it surely means that a golden decade has come to an end in the country. The crucial question now is whether the German government will leave everything in the hands of Donald Trump and his trade policy or step into the action itself and offer some fiscal stimulus.” Industry leaders worried . These concern is shared by a number of German industry leaders, including representatives of the Federation of German Industry (BDI).
“The government’s balance-budget policy should now be called into question in this economically fragile situation,” BDI Director General Joachim Lang told the Experts. Put the quarterly drop in growth down to a slump in exports, with the nation’s manufacturing sector taking a severe blow over uncertainties related to the outcome of the protracted US-China trade conflict and the expected impact of a hard Brexit. Exporters are confident that the German economy would face additional problems if a no-deal Brexit from the European Union by the U.K. actually materialized .
What analysts view as particularly worrying is that a long-term pillar of the national economy, which is domestic consumption, may now also start to crumble. Brzeski called for a level-headed approach to get out of the current slump. He noted that the second-quarter drop was anything but pronounced and wasn’t really reminiscent of what the German economy experienced about a decade ago.
The German economy is clearly running out of steam and needs a fresh impulse to take off again. Although the German economy may be teetering on the edge of recession, the government currently shows little resolve to act. Chancellor Angela Merkel brushed aside domestic and international calls for more fiscal stimulus, insisting there was : no need for a stimulus right now.
Economy Minister Peter Altmaier acknowledged, though, that the most recent growth figures were “a warning signal” and showed that simmering trade conflicts had taken their toll. He told the Bild newspaper on Wednesday that in order to avoid a recession, more investments in future-oriented technologies and digitization had to be made. He also mentioned the possibility of lowering corporate tax in order to support companies.
The German government is under increasing pressure to respond to the slowdown by borrowing more to support spending. Germany’s “debt brake” law compels politicians to draw up a balanced budget, but some economists argue that Germany should now launch a stimulus program. Big Downturn is coming. The recession will happen despite the central banks because it is due. Poor old Germany will struggle more because they are used to being wealthier. Southern Europe like Greece; is already intimately involved with the idea of a contracting economy – Germany just put it off a little longer.
How can Germany still grow, when all its customers are shrinking or at best static? Perhaps someone will work out that endless restrictive practices, regulations, and directives actually hamper trade and commerce. It’s not just Germany, South Korea, Japan, China. In fact, the whole world is slowing down. The reality is growth is finite; the world simply can’t keep consuming more every year without reaching a limit. Our economic system requires constant growth. No growth, and it collapses. Germany is collapsing, and so is everyone else.
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