Germany to avoid recession, says bank

Germany to avoid recession, says bank
File image.

Growth in Germany, Europe’s biggest economy, will remain weak in the fourth quarter but there is no reason to fear a recession and there are signs that prospects for its vast industrial sector may be stabilising, the Bundesbank said.

Germany escaped a recession last quarter with a better-than-projected 0.1% quarterly expansion but the figure is likely to have indicated stabilisation and not a rebound as export-focused sectors continue to suffer.

“The slowdown of the German economy will probably continue in the fourth quarter of 2019. However, it is not likely to intensify markedly. As things currently stand, overall economic output could more or less stagnate,” the German central bank said in a monthly economic report.

A global trade war, China’s own slowdown and shifting consumer habits have pushed Germany’s industry into recession but the domestic economy has remained resilient.

Part of the explanation is that firms are retaining staff even in difficult times out of fear they would struggle to find skilled workers once the downturn passes. “From today’s vantage point, there is no reason to fear that Germany will slide into recession,” the Bundesbank said.

The central bank also noted that there are some tentative signs of stabilisation in industrial demand and said the domestic economy will probably continue to provide momentum.

“Because the labour market is likely to remain fairly robust and wages are expected to grow considerably, households’ income prospects should remain favourable,” it said.

Meanwhile, the country’s top union and industry leaders said that Germany requires €450bn in public investments to modernise its infrastructure after doing too little for decades.

Europe’s largest economy now requires massive funds to catch up, become more competitive and boost its growth potential, said the study commissioned by the union federation, DGB, and the industry federation, BDI.

Germany has one of the lowest 4G availability scores in Europe, with millions of users in mostly rural areas unable to connect to 4G networks up to half of the time, according to a June report by Opensignal, a mobile analytics company.

Red tape in building out roads or wind energy are also on entrepreneurs’ laundry list of complaints. After years of fixing its public accounts, it was now time to put investments to the forefront, helping to fuel growth and living up to Germany’s responsibility in Europe, said Michael Huether, director at the Institute of the German Economy.

Reuters and Bloomberg

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