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German exports slump most in three years

GLOBAL TENSIONS:With its two key trading partners locked in a war over tariffs, German shipments overseas declined 8 percent in the three months ending June

Bloomberg

Containers at a loading terminal in the port of Hamburg, Germany, are pictured on Thursday last week.

Photo: Reuters

German exports registered their steepest annual decline in three years in June, underscoring the plight of the manufacturing sector as global trade tensions escalate.

Shipments abroad fell 8 percent from the previous year, the most since July 2016.

Imports, a gauge for the strength of the domestic economy, fell an annual 4.4 percent.

Strains are also showing in France, where industrial production plunged in June.

The data add to evidence that export reliant businesses are hurting badly, threatening to bring Europe’s largest economy to a halt.

Once a growth driver in the region, Germany is forecast to expand a mere 0.5 percent this year, with only Italy seen faring worse.

There are few — if any —- signs of imminent improvement. The US and China, two of Germany’s key trading partners, remain locked in a war over import tariffs.

The former recently announced its biggest hike in levies yet, prompting the latter to respond by allowing its currency to tumble to its lowest value in more than a decade.

Germany is caught in the middle. Big name companies — including Continental, Daimler, BASF and Lufthansa — have slashed their outlooks in recent weeks amid global geopolitical uncertainty.

Economists at Commerzbank predict that China is on the cusp of a more fundamental shift in how it is running its economy, with repercussions also for Germany and the eurozone.

“There is much to suggest that China is taking the ‘Austrian’ path, accepting a protectionism-induced reduction in economic growth, and refraining from massively increasing the economic stimulus package which so far has had little effect,” Commerzbank chief economist Joerg Kraemer wrote in a note.

The bank lowered its forecasts for economic growth in Germany and the eurozone for next year to 0.8 percent and 0.7 percent respectively.

Industrial production is already suffering across the region. In France, output dropped 2.3 percent in June from the previous month, the most since early last year.

In Germany, production registered its biggest annual decline in nearly a decade, and receding confidence indicators are feeding speculation that the economy may be headed for a recession.

Second-quarter data GDP data are due on Wednesday next week, with economists surveyed by Bloomberg forecasting stagnation.

So far, the German government has been reluctant to react, saying additional fiscal stimulus is not needed. This stance means the nation’s current-account surplus, which has drawn criticism from US President Donald Trump and the IMF, would remain significant. It widened to 20.6 billion euros (US$23.1 billion) in June.

European Central Bank President Mario Draghi last month said that it is “unquestionable” that governments will need to pitch in if conditions keep deteriorating.

Policymakers have signaled that they could provide more monetary stimulus as soon as next month.

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