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German economy goes into reverse as nation's exports slow

By Earle Gale in London | China Daily Global | Updated: 2019-08-14 21:55
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Germany's largest bank Deutsche Bank has been called out for reportedly paying top executives exorbitant sums of money in golden handshakes in recent months, while the company was hurtling toward an announcement of 18,000 job losses. [Photo/IC]

Germany's economy shrank during the second quarter of 2019, fuelling fears of a looming worsening global economic slowdown.

The constriction of Europe's largest economy during the April-to-June period was caused, in large part, by a decline in exports, according to official data.

The nation's Federal Statistics Office reported on Wednesday that gross domestic product, which is also known as GDP, fell by 0.1 percent during the three-month period, in comparison with the previous quarter. Across the eurozone as a whole, nations enjoyed a 0.2 percent GDP growth rate during the second quarter.

The latest slide moves Germany's annual growth rate down to 0.4 percent and means the nation is perilously close to being in recession. Last year, Germany also came close to slipping into recession, a state defined as comprising two consecutive quarters of negative growth and one that has not befallen the world's fourth-largest economy for six years.

The BBC said Andrew Kenningham, chief Europe economist at Capital Economics, was describing the early signs for Germany's third quarter performance as "ominous" with manufacturing business surveys for July "all gloomy".

"And while the services sector should continue to hold up better, there are some signs that the slump is spreading to the labor market," he said.

Official figures show German exports fell by 8 percent during the past year, and that industrial production plunged by 5.2 percent.

Andrew Walker, the BBC's economics correspondent, said the sluggish international economic environment had hit Germany particularly hard because of the nation's status as an exporting powerhouse. He noted that China is an important export market for Germany and said Beijing's ongoing trade difficulties with the United States may have had a knock-on effect on German exportsby dampening global economic confidence. Those US tariffs and the UK's pending departure from the European Union were among factors that last month led the International Monetary Fund to cut its growth forecasts for the global economy for both this year and for 2020.

The European Central Bank may respond to the latest set of disappointing figures by cutting interest rates and by buying more bonds in an attempt to stimulate Europe's economy.

Germany's statistics office said of the latest poor figures: "The development of foreign trade slowed down economic growth because exports recorded a stronger quarter-on-quarter decrease than imports."

The Financial Times said the latest numbers show that Germany has shifted from being the powerhouse of the eurozone economy to an economy that is "lagging behind".

It said the"prolonged weakness" in Germany's manufacturing sector shows signs of seeping into its services sector, and consumer spending.

Despite the alarming statistics, unemployment in Germany remains low and the nation's housing market is booming, insulating many ordinary Germans from developing worries about the wider economy.

The Reuters news agency said many manufacturers have now started to callon the German government to shelve its requirement to always submit a balanced budget in favor of spending money on a fiscal stimulus package aimed at kick-starting growth.

"For a year now, the German economy has been only crawling forward," UniCredit analyst Andreas Rees told Reuters.

"Besides Brexit, this is, above all, the US-Sino trade dispute, and possible US tariffs on European cars," Rees said.

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