German economy shrinking

Germany's GDP sank by 0.1 percent in the second quarter compared to the first quarter. International trade conflicts and uncertainties surrounding the Brexit are being cited as primary causes. Observers fear Germany's negative growth could have an impact on other countries. What steps should Europe's biggest economy take?

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Handelsblatt (DE) /

A loser of deglobalisation

Germany's export-oriented growth model is in serious trouble, Handelsblatt fears:

“Quite apart from the economic policy mistakes of recent years, the main reason for the grim outlook is the trend towards deglobalisation. ... What we may well be heading for is a sort of two-tiered globalisation, with half of the world following Beijing's rules and the other half following Washington's. Germany is just an onlooker in this dispute, but it is not unaffected. Because in this new bi-polar world real free trade of the kind that Germany has benefited from for so long will no longer exist. ... With China's rise to the position of the world's second hegemonic power, the days when Germany almost had a monopoly on supplying the world with top-quality machines, cars and chemicals are coming to an end.”

El País (ES) /

Invest in infrastructure and green energies

The slowing economy leaves only one course open to Germany, El País concludes:

“The improbability of the trade tensions ending anytime soon calls for resolute decisions to be taken. ... Germany must use the ample leeway in its public finances to stimulate plans for public investment in transport and digital infrastructure, renewable energies and other projects to counter the risk of recession which also poses a threat to the other European economies. ... Clinging to the austerity policy now would be the worst way to guarantee all Europe's prosperity and stability.”

Delo (SI) /

Dangerous austerity

Germany urgently needs a boost in the digitisation sector, Delo believes:

“There is not a single German company among the global tech giants. ... The global economy is no longer driven by the traditional steel and oil industries but increasingly by the service sector. If the fourth industrial revolution - which could now replace industry the way the steam engine replaced agriculture - continues apace, services will become the prime source of added value. Then Germany will face serious problems. ... Austerity at all costs could then prove very dangerous. ... It would send a welcome signal to Europe if Germany gave up its blinkered policy and replaced it with a pragmatic economic policy.”

Verslo žinios (LT) /

Growth can't last forever

Economic performance follows a cyclical pattern and companies shouldn't forget this, business paper Verslo žinios warns:

“The decreasing value of companies and shrinking consumption of households in the Eurozone are sending the first signals that the economy is slowing down. If we enter this cyclical phase, companies should review their planning possibilities. And they should check whether there are new trends on the markets where they are active. ... It was only natural that growth was strong after hitting a low point. But now we'll just have to get used to a slowing in the cycle once more.”

Frankfurter Rundschau (DE) /

Invest in infrastructure now

Germany's GDP again dropped by 0.1 percentage points last quarter, meaning that the country is brining up the rear regarding economic growth in the Eurozone. The time has come for the state to intervene and stabilise the situation, writes the Frankfurter Rundschau:

“With an infrastructure expansion programme of at least five years' duration. And that would do considerably more than just lighten the mood. In fact this is the only way to achieve the climate targets, combat the housing crisis in the cities and make fast Internet available everywhere. Moreover the financing conditions are more favourable than ever. If the government borrows money now, not only will it not have to pay any interest, it will even be able to charge investors for putting their capital at its disposition. And as a side effect Germany would be making itself fit for the future. ”

NRC Handelsblad (NL) /

Dutch must brace themselves

Unlike the German economy the Dutch economy is registering slight growth at the moment. But that won't last for long, NRC Handelsblad warns:

“When Germany sneezes, the Netherlands catches a cold. And, sticking to this image: the Netherlands would do well to stock up on Kleenex. ... Dutch growth is mainly driven by domestic consumption, investments and the export of services. ... But exports of goods produced in the Netherlands have dropped. ... The Netherlands - an open economy - is certainly not immune to what's going on in the world. ... Britain, our second-biggest export market after Germany, registered a 0.2 percent drop in GDP in the second quarter. And Brexit is yet to come.”

La Repubblica (IT) /

Trump's victory over Berlin and Beijing

Like China, Germany is a victim of US protectionism, explains US correspondent and China expert Federico Rampini in La Repubblica:

“In a certain sense the Chinese and German problems are a victory for Donald Trump. Whether this is a Pyrrhic victory remains to be seen. What is clear is that from the first day after his inauguration in the White House the US president had Berlin and Beijing's trade surpluses in his sights. With his tariffs he has punished the sinners: 'Made in China' to a greater extent than 'Made in Germany', but here too, there is the risk of new tariffs. ... Two economic superpowers who are used to having unlimited access to the US are progressively being impoverished by the closure of this market.”

Jutarnji list (HR) /

Worrying figures

Several European countries are faring very poorly in terms of their economic indicators, Jutarnji list remarks:

“The British economy shrank for the first time in seven years in the second quarter. France saw a sharp drop in industrial production at the end of June. And with a 5.2 percent year-on-year decline in industrial production, Germany came close to recession for the first time after six boom years. When you factor in Italy's permanently worrying economic results it looks like this autumn could be gloomier than anticipated. Are we in for a new major crisis even before we've put the last one behind us?”

Jornal Económico (PT) /

No reason to panic

Jornal Económico, by contrast, believes the negative predictions are exaggerated for now:

“The recession is not an irreversible process, in particular with alert central banks. There is also data that points to growth in the major economies. These economies are expected to continue growing in 2019 and 2020, albeit at a slower rate and, according to prognoses, with greater risks. ... The central banks are better prepared now than they were at other times when the circumstances were similar, so that the news about an inevitable recession and a vicious circle on the financial markets could, for the time being, be exaggerated.”

Blog David McWilliams (IE) /

The fatal errors of the central banks

In the new digital world the central banks can no longer boost inflation by lowering interest rates, blogger David McWilliams writes, criticising the most recent steps taken by the US Federal Reserve and citing the case of taxi service provider Uber as an example:

“Like Amazon, Uber intends to continue driving prices down until it destroys the competition. To do this, it needs investors to tolerate losses for a long time because this is the only way it will emerge as the winner. It aims to be the last one standing. However, to do this, interest rates must be low because it is only via the mechanism of very low costs of capital that investors are prepared to wait indefinitely. ... Central banks panicking into cutting rates as they did this week will just make prices fall further rather than rise any time soon.”

Frankfurter Allgemeine Zeitung (DE) /

Worries about the economy are exaggerated

The economic situation does not yet require the intervention of the ECB, the Frankfurter Allgemeine Zeitung believes:

“It's true that the economic situation is growing gloomier. ... But even if the situation in Europe has undeniably worsened, the economy is not in a fundamental recession and the deviation of the current inflation rate from the European Central Bank's inflation target is not so dramatic as to warrant a major monetary policy reaction. The European Central Bank should certainly think carefully about this. After all, the interest rates on bank deposits are already below zero, and the last bond-buying programme has only just been digested. The kind of comprehensive monetary easing many banks are now expecting from the ECB for September or October should at least be carefully considered.”

Rzeczpospolita (PL) /

Sooner or later it will hit us too

A recession is on the way, Rzeczpospolita worries:

“The bad figures for German industry will no doubt soon have a negative impact on services. In Poland, whose biggest economic partner is Germany, the repercussions can already be felt. They've infected our industry, whose results are disappointing. Other European countries also stand to lose out. Experts are already evoking a high risk of global recession. ... Perhaps the crisis is only just starting, or maybe we can soon expect a positive turnaround if China reaches an agreement with Washington, for example. Then we'll have a moment's respite. But sooner or later it will hit us. So it's best to start getting ready for it now.”

De Volkskrant (NL) /

Europe's motor is stalling

For Europe this would be the worst possible time for Germany to slide into a recession, warns De Volkskrant:

“The euro crisis of 2012 was averted thanks to the clever course of ECB president Draghi. But in the long term it was Angela Merkel who resolutely took control of the powerful German motor. She was able to help a country like Greece and avert a Grexit. Back then Merkel was at the height of her power, now she is about to see it come to an end. A new euro problem is looming in southern Europe as the right-wing populist Matteo Salvini is making the same kind of grab for power as the left-wing populist Alexis Tsipras did in Greece. ... If Germany slides into recession the country will hardly be inclined to take the lead in a crisis again.”

Delo (SI) /

Far-sighted strategy pays off

Only those companies that have prepared for hard times will weather the looming crisis, Delo predicts:

“Many Slovenian companies have used the period of solid growth since the last crisis to develop new products, raise production, access new markets, enlarge their consumer base and focus on new projects. ... These businesses say they'll be able to compensate for the drop in orders with new areas of business. Some companies with high-tech products such as Dewesoft, which specialises in measuring equipment, are even chalking up extraordinary growth. By contrast others that failed to take advantage of the favourable economic conditions and didn't think about the future are now far less immune to the German economic crisis.”

Dagens Nyheter (SE) /

Political failures leading to disaster

Dagens Nyheter sees the global economy in a critical state:

“A tariff war between the US and China could precipitate a recession. ... But worse than that is that it's not only relations between the world's two largest economies that are in trouble. ... The EU potentially stands to face its biggest challenge ever if Brexit becomes reality. ... Now the British government seems to be focussed on leaving without a deal. This will create shock waves on both sides of the English Channel. ... The global economy has probably not been in such a worrying state since the financial crisis in 2008. And politics is to blame.”

De Tijd (BE) /

Gold price is a barometer of fear

The price of gold is rising. De Tijd sees this as a clear warning:

“The fact that gold is in such high demand again reflects the increased uncertainty that has pervaded the financial markets and is being stoked by the escalating trade war between the US and China as well as other factors. ... This is compounded by geopolitical tensions. For now, it seems unlikely that the trial of strength between the US and China will turn into a military confrontation. ... But military tensions are increasing in the Middle East, where Iran and the US are on a collision course. ... It won't take much for the situation to explode. Perhaps it won't come to that. But the price of gold is a barometer of fear. And it shows that a growing number of investors are very scared.”

La Stampa (IT) /

High risk of contagion

Economic expert Mario Deaglio is particularly worried in La Stampa about the decline in Germany's industrial production:

“The external factors include the trade war between the US and China - both major customers of Berlin and both willing to punish those who do business with the 'enemy' with tariffs or other punitive measures. ... The domestic factors include the weakness of certain major banks, the lacklustre performance of many big companies, the real estate bubble, which is driving the Germans - citizens in an ageing nation - to cut back on daily consumption and save to buy a house instead. ... The problem is that Germany is our best customer. Our industrial exports to Germany amount to more than a billion euros per week and span the entire production chain, from food products to cars and from metallurgy to chemicals.”