Thu, Aug 15, 2019 - Page 10 News List

German economy shrinks as trade tensions take toll

Bloomberg

A worker walks past steel rolls at a Salzgitter AG plant in Salzgitter, Germany, on March 5.

Photo: Reuters

Germany’s economy shrank in the second quarter of this year, piling pressure on German Chancellor Angela Merkel to unleash fiscal stimulus as manufacturers reel from a US-China trade dispute.

GDP fell 0.1 percent from the previous three months, in line with forecasts, as exports slumped.

The economy has contracted in two of the past four quarters.

Merkel said on Tuesday that the country was heading into a “difficult phase” and even hinted that her reluctance to respond is softening.

The contraction in Europe’s largest economy is weighing heavily on a region struggling to sustain momentum. Growth slowed in most eurozone countries, including France and Spain, Italy is teetering on the verge of recession, and profit warnings from some of the bloc’s biggest companies suggest little sign of a turnaround.

In Germany, sentiment among executives and investors has plunged, suggesting that a government forecast for growth of 0.5 percent this year, the weakest since 2013, might still be too optimistic.

Second-quarter economic output was dampened by trade, with exports falling faster than imports.

Private consumption and government spending were higher than in the previous three months. Investment rose, despite a decline in construction.

The European Central Bank (ECB) has already all but committed to hand out fresh stimulus to jump-start the eurozone economy and is forecast to cut interest rates as early as next month.

ECB President Mario Draghi has been among the chorus of international voices pleading with Germany to loosen the purse strings after running surpluses over the past half-decade.

German industry has been mired in a slump as worsening trade woes and weaker global growth sap demand for machinery and vehicles.

Industrial production suffered its biggest drop in a decade in June and freight volumes at German airports saw the steepest decline since 2012.

Among the casualties is Siemens AG, which said earlier this month that it would struggle to meet financial goals because of a deteriorating economy and heightened political uncertainty.

Automotive supplier Rheinmetall AG also lowered its outlook, scrapping expectations for a “tangible” recovery in the coming months.

Dusseldorf-based Henkel AG also issued a profit warning that summed up Germany’s woes.

The industrial firm is facing pressure on two fronts, a slowdown in the auto industry and weaker demand in China, the same environment that is crippled manufacturing across the country.

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