Europe’s largest economy has been dented in recent months by weak manufacturing and industrial sectors, compounded by the ongoing trade war between the United States and China ongoing Brexit uncertainty. This month saw the federal government slash its growth forecast for this year, predicting growth of 0.5 percent, down from an already lowered estimate of 1.0 percent. Initial gross domestic product (GDP) growth expectations for this year were once as high as 1.8 percent. However, the German government also insisted momentum will pick up in 2020 where growth of 1.5 percent is expected.
Neil MacKinnon, Global Macro Strategist at VTB Capital, warned Germany should not relax just yet when it comes to the economy picking up and claimed the nation is still at risk of being dragged down by ongoing political turmoil around the world.
Germany in particular is highly sensitive to movement in the Chinese economy, with Beijing remaining the most important trading partner for Berlin outside the EU.
The Chinese economy took a battering in 2018, sparking major fears of a global slowdown, however there are hopes this year could fare better with first-quarter economic data defying expectations for a further cooling in growth.
Mr MacKinnon said: “Germany faces impending recession risks and being a significant exporter has proved Germany’s vulnerability to the downturn in world trade.
“Germany’s economic weakness in the face of the European Central Bank’s policy of negative interest rates is worrying.
“Other major economies like Italy are already in recession and the Italian youth unemployment rate is over 30 percent.
“Little wonder that there is voter disenchantment with Brussels and its call on the Italian government for fresh fiscal austerity.
“German economic stagnation suggests that the Eurozone generally will struggle to recover this year especially given the ECB’s limited policy ammunition.”
This week saw the release of the latest flash PMI manufacturing data, with both Germany and France failing to pick up pace from a recent slump in the eurozone economy.
Germany came in weaker than expected with a reading of 44.5 in April, well below the 50.0 mark separating growth from contraction.
The figure made for disappointing reading, despite it being slightly up on the previous month, which came in at 44.1.
Car manufacturing has taken a hit from stricter emission standards that have jammed new car registrations.
The German economy skirted on the edge of recession territory at the end of last year following a string of weak data releases.
The nation narrowly avoided slipping into the red at the end 2018 with latest figures from the Federal Statistics Office showing GDP remained unchanged in the final three months of 2018.
A recession is defined as two or more consecutive quarters of contraction, leaving investors keeping a watchful eye on the economy after it shrank 0.2 percent in the third quarter.