Daily Management Review

Eurozone Recession Fears Arise Out Of Shoddy German Economic Numbers


Eurozone Recession Fears Arise Out Of Shoddy German Economic Numbers
There was a more than expected fall in the June numbers for German industrial output primarily because of some significant fall in car-making and metal production. This has raised concerns among some that it could be signaling an impending Eurozone recession.
This drop in the June numbers also suggest that the largest economy of Europe possibly contracted in the second quarter amidst a host of global trade disputes that has affected global trade and exports.
According to figures released by the Statistics Office showed on Wednesday, in June there was a drop of 1.5 per cent in industrial output which was far greater than the 0.4 per cent drop that was forecast by economists.
"The continued plunge in production is scary," Bankhaus Lampe economist Alexander Krueger told the Reuters news agency and added that the escalating trade dispute between China and the United States was likely to force continuation of the recession in the manufacturing sector.
There is a disproportionately large effect on German goods producers because of the tit-for-tat tariff dispute between the world's two largest economies since both the countries are critical export destinations for German manufacturers.
"The longer this continues, the more likely it is that other sectors of the economy will be dragged into this. Growth forecasts for Germany are likely to be trimmed further," Krueger said.
In the second quarter, there was a drop in production in construction while a 5.9 per cent drop in the same period was noted in the energy sector.  "Industry remains in an economic downturn," the economy ministry said.
Just a day ago, reports said that numbers for the figures of German industrial orders was more than anticipated for the month of June. However, the economy ministry warned that a slowing world economy, international trade disputes and Brexit uncertainty were affecting the sector and preventing it from reaching a turning point.
Expectations that the German economy shrank slightly in the second quarter was supported by the industrial figures, said Commerzbank economist Ralph Solvee and added that in the coming months there is an expected decline in the manufacturing output of the country.
"A look at the individual sectors shows that the crisis in the automotive sector is continuing unabated," Solveen said and added that the slump that had hit t German car manufacturing sector because of the issues related the switching to a new emissions measurement standard last year is yet ot get over and the sector is yet to stage a turnaround.
"However, the main reason for this weakness is now likely to be significantly weaker foreign demand," Solveen said.
According to the forecast of economic growth by the German government, the economy of the country is expected to grow by just 0.5 per cent in the current year and by about 1.5 per cent in the next year.
There was a possible contraction in the German economy by 0.2 per cent in the second quarter as suggested by the data, said Andreas Scheuerle from DekaBank. There was a 0.4 per cent growth in the German economy in the previous quarter.
"We assume that this is the prelude to a technical recession," Scheuerle added. Technically, a recession is said to have occurred when t here are two consecutive quarters of economic contraction.