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Bundesbank: German economy apparently continues to shrink


In the spring, German economic output fell slightly. According to a forecast by the Bundesbank, this trend could continue in the third quarter.

The Bundesbank assumes that the German economy could also shrink slightly over the summer. "The overall economic performance could once again decline slightly," it said in the monthly report of the institute. Even in summer, the German economy would remain "swing-free".

According to data from the Federal Statistical Office, gross domestic product (GDP) had already shrunk by 0.1 percent in the period from April to July compared with the first quarter of the previous year. If economic output falls for two quarters in a row, economists are already talking about a "technical recession". From January to March, German GDP had grown by 0.4 percent.

Trade conflicts put pressure on exports

In the spring, it was foreign trade weakened by Brexit, the trade dispute between China and the US and a slowdown in the global economy, which was responsible for the slight decline. This triggered a decline in orders in industrial production. Also for the summer, the Bundesbank expects a "continuing downturn in German industry." The production is expected to shrink further.

The situation looks better for export-independent economic sectors, they have so far avoided the downward pull, according to the experts, and would now support the economy. The continued boom in the German construction industry, according to Bundesbank data, also contributes to this, as does consumer spending, which is persistently high due to low unemployment.

However, according to economic experts, the first signs of a slowdown in the labor market are already evident. In the second quarter, employment was weaker than in the previous quarter. "From today's perspective, it is unclear whether exports and thus industry will catch up before the domestic economy is affected to a greater extent."

Positive signals from the industry

The Federal Statistical Office recently came up with positive estimates. The order cushion of the industrial companies had increased in June. Previously, it has dropped for six months. As reported by the Federal Statistical Office, the stock increased by 0.1 per cent compared to the previous month on a price, seasonally and calendar-adjusted basis.

Although the unpaid domestic orders fell by 0.4 percent, foreign orders rose by 0.3 percent during the same period. Inventory is the sum of the incoming orders of a month that have not led to sales yet and that have not been canceled, which means that future revenues are expected.

The order backlog also remained stable in June at 5.7 months. This value indicates how many months the companies would have to produce at constant sales without new orders in order to process the existing demand if there were no new orders. Especially for machinery and consumer goods should be expected according to the statistics office from increasing sales.

However, this effect will probably only become noticeable in the last quarter. If the economy actually shrinks by then, that would be the third negative quarter within a short time: By the autumn of 2018, GDP had shrunk by 0.1 percent. Experts assume that a real recession will occur if the economic output for the whole year shrinks compared to the previous year. This is currently not expected. The federal government expects growth of 0.5 percent in 2019, after the economy grew by 1.4 percent last year.

Source: zeit

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