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German output plunges, economic outlook bleak

Agencies

German industrial production plunged the most in almost four years in April and the nation’s central bank gave a gloomy assessment of the outlook, highlighting an ongoing slump in Europe’s largest economy.

German factories are at the heart of Europe’s slowdown, as trade tensions, weaker vehicle sales and cooling global demand weigh on exports.

The 1.9 percent drop in output was the biggest since August 2015 and follows a survey this week showing that manufacturing probably still contracted last month.

That is worrying European Central Bank policy makers, who fear the manufacturing weakness will ripple through to other areas of the euro-area economy, where the services sector has so far had to prop up demand.

In a related development, the Bundesbank yesterday slashed its growth projections for Germany, saying that industrial groups in the euro zone’s biggest economy would suffer from weak demand through the rest of the year.

Having been Europe’s engine of growth for years, Germany is now the biggest drag on the bloc, threatening to derail the euro zone’s long and protracted recovery from years of crisis as global trade disputes exacerbates its troubles.

The European Central Bank on Thursday took the prospect of an interest rate hike off the table and said that it could even cut its already record rates or restart a massive asset purchase program given weak growth.

The Bundesbank now sees GDP growth for this year at just 0.6 percent, well below the 1.6 percent it forecast in December last year, and it expects growth to rebound to only to 1.2 percent next year, short of the 1.6 percent projected earlier.

“The German economy is currently experiencing a marked cooldown,” the central bank said in a biannual update of its projections. “This is mainly due to the downturn in industry, where lacklustre export growth is taking a toll.”

The bank also warned that while it did not expect a more protracted decline in output, risks were still skewed toward a more negative outcome than its projections.

“For economic growth and, to a lesser extent, for the rate of inflation, it is the downside risks that predominate as things stand today,” it said.

Inflation this year is still expected at 1.4 percent, but given the weak growth, its rise is likely to be much slower than earlier thought, the bank said.

It now sees inflation for next year at 1.5 percent, below the 1.8 percent seen in December and also well short the European Central Bank’s target of close to, but below 2 percent.

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