The ghost of the recession threatens the European power, which considers loosening the belt of orthodoxy against risks such as the commercial war or Brexit.
‘Technical Recession’ are the two words that keep Germany and all of Europe in suspense. The German locomotive contracts after ten years of strong economic growth and the probability that official figures will turn the recession ghost into reality.
But how has the world’s fourth economy got here? And above all, now what?
In mid-August, the Federal Statistical Office announced a contraction of GDP of 0.1% between April and June, which is the second non-consecutive quarter that decreases in one year.
In the absence of the third quarter figures being published this fall, there are many indicators that point to the end of the golden era of the German economy. The whole economy could contract slightly again, the Bundesbank said in its report, de facto anticipating a recession scenario. The main cause is the continued decline in the industry.
Meanwhile, in Brussels and in the European capitals there is concern over the clouds that are coming in an apparently inexorable way. ‘Yes, we must be worried. The likelihood of us entering recession is very high.
In the last three weeks we have seen that the assumptions we made have not only ended up being fulfilled but have even worsened, ‘explains Timo Wollmershauser, head of the economic situation of the IFO Institute. The commercial war does not subside and the possibility of new tariffs remains on the horizon.
Meanwhile, Brexit without agreement or wild becomes more likely. The domestic economy cannot be isolated from external problems. It is an economic book contraction.
The causes of the current decline are outside the borders of Germany, observers agree and the statistical office reiterated this week. The development of the foreign economy slowed growth.
Germany has an export-oriented economy, which makes it especially vulnerable to external fluctuations. Trade tensions and, in particular, the trade war between the United States and China or Brexit are the main sources of instability, which in turn have a direct impact on German sales abroad.
Data published this week show a 1.3% drop in exports in the last quarter, compared with a 0.3% drop in imports, which resulted in a 0.5% negative contribution to economic growth.
The figures that reflect a drop in exports are clear. Germany depends heavily on China, the United States and the United Kingdom, but also on other countries affected by the crisis in relations between Beijing and Washington.
Among the approaches and beyond possible reforms, the so-called German economic model is not in question. When you have a very powerful industrial fabric, it makes no sense to abandon it and decide that suddenly you want to be Silicon Valley.
Germany is at the center of the globalization chain. The United States is the first German customer, China the third and the United Kingdom, another crucial market for Germany, the fifth.
Nobody knows at this point what will be the outcome of the Euro-British divorce drama or the magnitude of the disaster. What is clear is that none of the possible scenarios is particularly encouraging.
Beyond global volatility, the concern in Germany is to determine the extent to which the slowdown affects the domestic economy, which until now was considered safe due to the strength of indicators such as employment, construction or consumption. Until now, it had been the industry, which represents around 25% of German GDP, which had registered the fall, but in the last two months, they have seen how it is moving to other sectors of the economy.
German Economy: More Consumption And Investment:
Consumption (+ 0.1%) and public (+ 0.5%) and private investment, however, grew, although not enough to compensate for other indicators and in any case, below the previous quarter.
Construction is still going through a certain boom and demand is strong, although investment fell 1% in the last quarter. The fall, however, according to Carsten Brzeski, chief economist at ING in Germany, has more to do with an exceptionally strong first quarter.
Beyond the effects on the real economy and when and how the average family will begin to accuse the weakness, the ghost of the recession has given rise to an intense substantive debate on how politicians should face this storm.