Published On: Wed, Aug 14th, 2019

Germany news: FOUR reasons Germany is plunging toward recession and why it will get WORSE | World | News

Germany’s GDP shrank by 0.1 percent in the second quarter, fuelling fears of a recession and causing economists to call for policies to tackle corporate tax cuts and increased investment in Germany. The prospects of further deterioration over the coming months due to weak exports and weak manufacturing figures give little hope for a speedy recovery according to economic experts. Martin Wansleben, Managing Director of the Association of German Chambers of Industry and Commerce (DIHK) said: “After the good start of the year, the companies have arrived in the harsh economic reality and there is currently no turning point in sight.

“Business expectations are falling in all sectors.”

Mr Wansleben warned: “If we do not take countermeasures, the German economy will literally be caught out in the face of a slowing economy.”

According to Bank Lampe, after a slight decline in economic output in the second quarter, Germany is facing a technical recession, ie a further decline in gross domestic product (GDP) in the current third quarter.

Chief economist Alexander Krüger expects that in addition to the known problems of the industry there will be a “backlash” against the strong increase in consumption in the second quarter.

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Here are four reasons Germany could be heading for a recession

1. No Deal Brexit

As the UK faces political deadlock and the Brexit deadline of October 31 approaches, countries in the EU are feeling a knock-on effect.

In surveys, German business has touted the threat of the UK leaving the European Union without a no deal to be a key worry impacting the economy.

Germany’s third-largest export market in Europe and the fifth worldwide is the UK, with $92bn (£76.15 billion) of goods exported in 2018.

Should no-deal Brexit take place, Germany could see it’s economy slump even further.

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2. Trade War fallout

As trade tensions between China and the US increase, Germany has been affected due to its dependence on export markets.

German industrial production fell 5.2 percent year-on-year in June, which was the biggest decline since 2009.

Melanie Vogelbach at the Association of German Chambers of Industry and Commerce said: “The challenges for the German economy are mainly based on international factors: trade conflicts, sanctions and the scenario of a no-deal Brexit.

“Trade wars are never good and for an economy that relies as much on exports as German industry, that is a very important factor.”

Exports for Germany have fallen eight percent over the past year.

3. Europe’s biggest economy falls the hardest

As Europe’s biggest economy, and the fourth largest worldwide – Germany feels the knock-on effects of economic issues elsewhere.

Neil MacKinnon, a strategist at VTB Capital said: “When China sneezes, Germany catches pneumonia.”

Ahead of the Netherlands and the UK, China is Germany’s third-largest export market and it the worst growth in the three months to June since 1992.

Before the trade war began, China’s economy was already facing a slight decline, but the higher US tariffs have accelerated this.

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4. Slowing automobile industry

As the Chinese market struggles, so does Germany’s car manufacturing industry.

In 2018, nearly a quarter of all cars sold in China were German, which was more than a third of BMW and Daimler’s total sales, according to ING.

ING economist Carsten Brzeski said: “It’s not actually the trade conflict that is most concerning but the structural shifts in the Chinese automotive market, which could turn out to be one of the biggest threats in the years ahead.”

The jobs market is also declining, with just 1,000 jobs created in June – far less than the 44,000 average growth in June.

Adding to the problem, a number of industrial companies have also cut workers hours recently.

Additional reporting by Monika Pallenberg

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