Thought of as a powerhouse in the European economy, Germany has today has recorded shrinking economy as the quarterly gross domestic product figures were published. Overall, the data showed Germany’s GDP has fallen by 0.1 percent in the second quarter of 2019. This follows gains of 0.4 percent in the first quarter, and 0.2 percent in the second across the Eurozone as a whole.
The contraction is being blamed on a combination of upheaval in Germany’s automobile industry, the UK’s indecisive exit from the European Union and the US-China trade war.
Melanie Vogelbach at the Association of German Chambers of Industry and Commerce told The Telegraph: “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.”
Economists are worried these factors could trigger the first-ever recession for the world’s fourth-largest economy.
Exports for Germany have fallen eight percent over the past year for the export-reliant country, and industrial production itself has fallen by 5.2 percent.
Ulrich Ackermann, head of foreign trade at VDMA – the trade body for machine manufacturers – told the Financial Times: “If companies expect the investment climate is going down they stop ordering components and reduce their stocks, so this can happen very fast.
“It is the first sign that the economy is declining. It is usually component companies that get hit first.”
The Chinese market being under strain is one reason Germany is struggling as in 2018, nearly a quarter of all cars sold in China were German.
This 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.
Klaus Günter Deutsch, head of research, industrial and economic policy at BDI told The Financial Times: “The government is looking at this with concern as the economy is deteriorating faster than it had expected.
“I think the attention should now shift to fiscal policy.”
Also in decline is investor confidence in Germany, which according to research group ZEW is at an all-time low since 2011.
ZEW president Achim Wambach has attributed the shock lul in confidence on a mixture of the threat of a no-deal Brexit at a high, the threat of a global currency war and the increasing US-China trade tensions.