German central bank warns economy could already be in recession
Germany’s central bank has warned that the country’s economy could already be in recession as the malaise in its industrial sector continues.
Read more: German economy shrinks in second quarter as exports slump
The German economy, Europe’s biggest, contracted in the second quarter due to falling exports and industrial production induced by trade tensions, a global slowdown and Brexit.
The Bundesbank said in its monthly report on the health of the economy today that “overall economic performance could again decline slightly”.
It said that growth in employment and wages, which have propped up the economy, were showing signs of weakening.
But the central bank made clear that “the main reason” for Germany’s poor performance “is the continuing downturn in industry”.
The German manufacturing sector, traditionally the powerhouse of the European economy, is in sharp contraction. In July it suffered its worst fall in output in nine years.
Analysts at Deutsche Bank concurred with the Bundesbank’s analysis, saying: “We see Germany in a technical recession, as we expect another quarter per cent GDP drop in the third quarter.” They said: “External headwinds have strengthened”.
Weakness in Germany and the threat of a recession in Italy are among the factors that have prompted the European Central Bank (ECB) to say it will inject stimulus into the Eurozone economy.
It is expected to slash interest rates further into negative territory when it meets next month and could restart its bond-buying programme known as quantitative easing (QE).
Germany has come under increasing pressure to abandon its commitment to a balanced budget and invest in its economy to boost growth.
European stock markets climbed today after finance minister Olaf Scholz said on Sunday that the government would provide stimulus in the event of a recession. Yet many think Germany should spend now to stave off such an event.
Oxford Economics chief German economist Oliver Rakau said: “We still expect sizeable fiscal easing only if a recession became imminent. That’s because the political costs of such a U-turn seem large absent more economic and political pain.”
Deutsche analysts said the US-China trade war will continue to drag on growth, but that they “still expect the consumer to hang in”.
Read more: Stock markets rise after Germany hints at stimulus
“Even in the battered manufacturing sector, employment was still up by 1.1 per cent year on year by mid-year, an even stronger increase than in the whole economy.”