German economy: on the brink of recession?

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After a sluggish start in 2019, researchers at the Kiel Institute for the World Economy now expect a further decline. However, the experts are more optimistic for 2020.

According to leading researchers, the German economy is on the threshold of recession. “In the third quarter, the gross domestic product (GDP) will probably decrease again,” predicted the researchers of the Kiel Institute for the World Economy (IfW) on Wednesday, who expect a minus of 0.3 percent. The economy would thus slide into a short recession, as GDP had already fallen by 0.1 percent in the spring. According to the Essen-based research institute RWI, there are also increasing signs that the weak phase is continuing and the economy is going into a downturn. According to the Kiel Institute for the World Economy (IfW), this means that the German economy is facing one of the weakest years since the financial crisis.

“Germany thus formally fulfils the definition of a ‘technical recession’, but this does not yet mean under-utilisation of capacities in the economy as a whole. Only in such a case could we speak of a recession in the sense of an economic phase,” said Stefan Kooths, head of the forecasting centre at the IfW.

RWI expert Torsten Schmidt explained that the decline in production in the manufacturing sector, and especially in the automotive industry, was continuing. For 2020, he expects the economy to recover somewhat and GDP to grow by 0.9 percent. The Kiel researchers take a similar view. For next year, the government consultants forecast a plus of 1.0 percent after an expected increase of 0.4 percent in the current year.

“Currently, there is more to suggest that the German economy will pick up in the coming year,” stressed the economists of the IfW. However, the experts warn that the uncertainty caused by the international trade conflicts and the imminent Brexit are likely to have a particularly negative impact on production in Germany. In addition, the weaker economy is increasingly making itself felt on the labour market. The number of unemployed will probably continue to rise for the time being. In addition, employment will decline in the coming year for the first time since the recession of 2009.

“The real problem with Donald Trump’s trade disputes is not the tariffs themselves, but the great uncertainty about what is yet to come. Because uncertainty is poison for investment decisions,” commented IfW President Gabriel Felbermayr. However, this is no reason to question Germany’s export orientation. “Many emerging countries around the world still have a lot of catching up to do. This offers very great export opportunities for German mechanical engineering companies and car manufacturers,” said Felbermayr.

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