Could Germany be Heading Toward a Recession

Photo Courtesy of STAHL CraneSystems

Could Germany be Heading Toward a Recession?

Continuing economic gloom is rattling Germany.

On Oct. 14 the government slashed its growth forecasts for this year and 2015 citing geopolitical crises and slower-than-expected global expansion, according to Agence France-Presse.

Economy Minister Sigmar Gabriel said his country was now predicting a growth of only 1.2% for this year and 1.3% for 2015. That is significantly lower than previous forecasts of 1.8% in 2014 and 2% in 2014.

These figures are causing enough concern for the country’s ZEW institute to “not rule out a recession," as reported by Monica Houston-Waesch, on marketwatch.com.

ZEW President Clemens Fuest said he couldn't rule out an economic contraction in the third quarter. "We are getting close,"  Fuest said at a news conference following the release of the survey data, however he noted any recession would likely be short-lived given Germany's strong domestic fundamentals.

Gross domestic product shrank 0.6% in the second quarter from the previous three months.

The ZEW survey of financial analysts measuring sentiment slumped into negative territory, to minus 3.6, considerably weaker than the average forecast of 0.8 in a poll by The Wall Street Journal, after September's 6.9 figure. This is the first time the reading has fallen below zero in nearly two years (November 2012).

The survey follows a number of weak German data releases, such as August's steepest on-the-month fall in exports since the 2009 recession, flanked by tepid figures on industrial output and manufacturing orders.

Last week, the International Monetary Fund revised its view of the eurozone, raising the likelihood of recession to nearly 40% from just over 20% in April, while German economic institutes chopped their consensus growth forecast for this year to 1.3% from a 1.9% forecast in the spring.

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