January 20, 2021

The sharp drop in exports leaves Germany on the verge of recession

Correspondent in BerlinUpdated:

The foreign sector subtracted five tenths from German GDP in the second quarter, being the main responsible for its one-tenth. The drop in exportss, 1.3% in that period, as the Federal Statistics Office has just confirmed, is what has left the European engine on the verge of recession and threatens to drag GDP into technical recession in the next quarter, such and as the Bundesbank has recognized in its latest monthly report. «This is the biggest drop recorded in the last six years», says the statement, specifying on the other hand that imports signed an interannual increase of 1.8%.

Despite this, the president of the German central bank, Jens Weidmann, affirmed this past weekend in an interview that «There is no reason to panic» and he warned that it is too early for the large stimulus package that the ECB is quick to tune up. Specifically, he disapproved of new bond purchases by the Mario Draghi team. "The current picture is particularly uncertain," he told German weekly Frankfurter Allgemeine Sonntagszeitung, «But we must not surrender to pessimism or activism», noting that central banks are not the first nor the only ones that must act against stagnation and leaving the ball on the roof of fiscal policies.

The «Automatic stabilizers», such as unemployment benefits, should be the first measures in case of greater economic weakness and, even if the German government has fiscal margin, «I don't see the need for a large-scale program», He said.

The German economy, focused on exports and the manufacture of capital goods, is a collateral victim of the commercial war unleashed by Donald Trump. The slowdown in China, a large customer in German machinery exporters, has meant a break in orders and inactivity extends to German factories.

The prestigious Ifo economic analysis institute in Munich, in fact, is warning that the weakness of the industry, linked to geopolitical factors, the situation that have already denounced firms like Henkel or Continental, it is spreading to other sectors of the economy. The pressure grows for the Merkel large coalition government, which is already discussing economic stimulus plans.

Finance Minister Social Democrat Olaf Scholz has talked about public investments worth 50,000 million of euros that are viewed with skepticism from the Bundesbank. «A fiscal stimulus could improve confidence and cement a growth rebound for the end of the year. But a new trade escalation combined with the absence of stimuli will be the biggest nightmare for the German economy», Commerzbank analysts comment.

This is very worrying news for the entire euro zone. German industry supposes more than 20% of the eurozone's GDP and, although the gross added value of almost all German sectors is rising, the Federal Statistical Office warns that it declined in manufacturing production by 4.9% over the same period last year. This sector accounts for one fifth of the total gross value added and lost 0.1% in the second quarter of 2019.


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