Could Germany, the euro-zone king pin, be about to join the recession procession?
Since the euro-zone debt crisis began in 2008 Germany has watched the domino recession effect wiggle its way across Europe. As nation upon nation fell Germany stood tall, shrugging off any debris thrown from the wreckage. But now it seems that infallible Germany might be on shaky ground.
Germany has borne a week of increasingly ominous data releases. Declines in imports, exports, manufacturing orders and industrial output have all been reported. With around two fifths of Germany’s exports going to other members of the currency bloc, the crisis in the euro-zone has badly affected Germany’s renowned export driven growth.
Today the economy ministry issued an uncommonly stark warning. They asserted that these figures, when coupled with a recent steep decline in business sentiment posed ‘significant risks’ to the outlook for the largest economy in Europe.
A modest 0.2 per cent growth is expected from second quarter gross domestic product data, released next Tuesday. Despite the forecast for modest growth, prominent economists feel that the threat of recession is not only lingering but growing.
Chief economist at Commerzbank Joerg Kraemer rather bleakly declared, ‘The German economy is losing momentum – there’s no doubt about that – and in the third quarter the economy will shrink compared to the second quarter. Things will go downhill from here. The German economy is not faring as badly as the rest of the euro zone but it can’t disconnect itself, especially as growth in China has slowed and continues to do so.’
As 2012 began there had been hope that the expected decline in German exports would be stabilised by private consumption. However, despite low levels of unemployment, strong wages, and low interests rates it seems that retail sales are falling.
In July high profile retailers expressed concern that conditions were worsening. The general feeling was that debt crisis fears were discouraging Germans from spending. German head of Hyundai Markus Schrick declared that countries should start preparing for the worst. He asserted: ‘The situation is difficult at the moment, there’s no doubt about that. We’re bracing for more difficulties ahead.’
The difficulties could prove to be numerous. Although Germany has enjoyed a continual drop in unemployment over the past six years, worrying signs indicate that the good times are heading for an abrupt end. Over the past four months seasonally adjusted joblessness has risen moderately whilst thousands of job cuts are planned within big German companies.
Peter Bolfinger, an economic advisor for the German economy, felt that the recent data indicates that the nation is teetering on the precipice of a technical recession. He has been quoted as saying: ‘It’s not the case that Germany can counter the weaker international economic situation with its own dynamism’.
Concern regarding the state of the Germany economy has spread to the populace at large. A survey conducted by the ARD showed that more than three quarters of German’s feel that the worst of the debt crisis is yet to come.
A question which will be increasingly posed over the coming weeks is whether a weakened economy will make Germany more or less likely to support euro-zone rescue efforts.