Fear of Germany tipping into recession averted, ministry says

Germany economyGermany’s economy is not facing a bigger slowdown or recessive period as previously thought, after shrinking slightly in the second quarter. 


However, the German Economy Minister said on Friday that although a recession is no longer a threat, risks still lie ahead as there are no indications of a positive rebound yet either. 


During the three months ending June, the German economy contracted by 0.1% quarter-on-quarter, with additional sluggish data published since then, prompting worries that the eurozone’s largest economy may tip into a recession during the third quarter. 


A recession is traditionally described by economists as two consecutive quarters of contraction. Earlier this week, several organisations believed the economy would slip into a recession during the July-September period. 


“The German economy is going through a weak phase,” the ministry said in its monthly report. 


“A bigger downturn or even a pronounced recession is not expected at the moment. However, indicators don’t point to an economic turnaround for the better either.”


As its key export-reliant manufacturing sector stalls a recession, the German economy has deteriorated. The weakness is mainly attributed to ongoing trade disputes and uncertainty surround Britain’s departure from the European Union on October 31. 


Although exports were waning, private and state consumption were providing significant cushioning for the economy, the ministry said. 


The industrial and energy sectors were showing signs of weakness, while construction remained steady, the ministry said. It added that a rebound in industrial activity was not on the horizon any time soon, after the sector witnessed a soft start to the third quarter. 


According to data published last week, industrial orders slumped while industrial output fell, fuelling concerns about the state of the economy. 


On Tuesday, Finance Minister Olaf Scholz told policymakers that Germany was prepared to drive “many, many billions of euros” into its economy, to offset a possible substantial downturn in growth. He added that the country must take significant steps to combat climate change before it is too late. 


 


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