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Business cycle: Economic institutes see acute danger of recession

2019-09-12T10:05:35.272Z

The union-friendly IMK puts the recession probability at just under 60 percent. The Ifo Institute lowered its growth forecasts due to the crisis in the industry.


Two economic institutes warn against a recession in Germany and point to the currently weak industrial production. Among them is the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation. According to the current economic indicator, the recession risk currently stands at 59.4 percent - in August the figure was 43 percent. This is the highest value since the winter half of 2012/2013. Therefore, there is an "acute danger of recession".

Indicators for this scenario are declining figures for production and new orders in the manufacturing industry, fewer vacancies on the job market and a "depressed mood in the German economy," the institute said. The reason for this is, above all, the external economic risks, that is to say above all the threat of a tough Brexit and commercial disputes. In addition, there are structural weaknesses in some industries, such as the automotive industry.

Ifo Institute expects shrinking economy

The Ifo Institute also expects economic output to continue to shrink in the summer quarter of 2019 - and, as in the spring, it will be on the order of minus 0.1 percent compared to the previous quarter. The prognosis is connected with high imponderables. "So we assume that a hard Brexit or an escalation of the US trade war fail," said Ifo economic leader Timo Wollmershäuser.

If economic output falls for two quarters in a row, economists speak of a technical recession. However, this is only a very mild recession. The situation would be different if economic output in the full year shrinks compared to the previous year. However, this is currently not expected. Most recently, this was the case in 2009 as a result of the global financial crisis; Since then, the German economy has continued to grow at some vigorous growth rates.

According to Ifo, the outlook for 2020 is also getting darker: instead of the 1.7 percent so far, the institute of the largest economy in the eurozone is confident that it will only grow by 1.2 percent, by 1.4 percent in 2021.

"The weakness of the economy has left its mark on the labor market," added Wollmershäuser. For 2020, the Ifo expects the number of unemployed to rise to 2.313 million, compared to 2.275 million this year. However, the number of employees is expected to continue to increase slowly.

Source: zeit

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