Germany is on the brink of a recession as Europe’s financial powerhouse suffered a collapse in industrial production.
The German economy stunned traders this week when it plummeted more sharply than expected.
Industrial production fell by -1.9 percent in November – a year-on-year low of -4.6 percent – which has fuelled uncertainty in the world’s fourth largest economy.
A recession in Germany could have a devastating impact on the fragile Greek and Italian economies.
‘Yesterday’s manufacturing data in Germany provided alarming evidence of a much more severe slowdown in the second half of last year than economists had initially expected.’ Claus Vistesen of Pantheon Macreconomics told Business Insider.
He said the economy had been rocked by a ‘perfect storm across all sectors.’
The collapse was so swift that Vitesen initially told his clients he did not believe the data was accurate.
Stefan Schilbe of HSBC told Business Insider that a recession was now likely, as Germany faces its lowest industrial production since 2008.
In recent days, evidence has been piling up that the eurozone recovery lost more momentum than anticipated at the end of 2018, particularly in Germany.
Unemployment across the eurozone had been falling steadily from a peak of 12.1 percent in 2013 as the region recovered from the global financial crisis.
However, ongoing worries about the level of government debt in a number of countries kept unemployment high, such as in Greece and Spain.
Since the German economy contracted by a quarterly rate of 0.2 percent in the third quarter of 2018 largely as a result of one-time factors related to new car emissions standards, another drop in the fourth-quarter drop would mean Germany will have entered a recession, defined as two straight quarters of negative output.
Still, unemployment remains extremely low in Germany at 3.3 percent, in sharp contrast to the rates still seen in those economies that were at the forefront of the eurozone’s debt crisis.
Greece’s unemployment rate, though sharply down from its peak, was still 18.6 percent in September.
There are other clouds beyond Germany hanging over the eurozone economy at the start of the new year.
France, the eurozone’s second largest economy, is also facing difficulties.
The country’s statistics agency INSEE revealed Wednesday that consumer confidence plunged in December to a four-year low largely as a result of the yellow vest protests that brought much of France, but particularly Paris, to its knees in the crucial Christmas trading period.
In addition, trade tensions between the U.S. and China have the potential to further weigh on a softer global economy while Britain’s impending exit from the EU could be another negative hit particularly if the country crashes out of the bloc without a deal to smooth its transition to new trading arrangements.
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