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German Bundesbank warns of further economic contraction in third quarter, recession

Wednesday, 21 August, 2019 - 20:13

The German economy could contract again in the third quarter of the year and go into recession, according to a note released on Monday by the German Central Bank (Bundesbank) in its monthly report, which cites the possibility of a “net contraction” of GDP due mainly to international trade tensions.

According to preliminary data from the Federal Statistical Office, the German economy contracted 0.1 percent between April and June, with a major slowdown in exports. If the predictions of the Bundesbank for the summer are correct, the largest economy in Europe would register two consecutive quarters of economic contraction, a technical recession.

Germany experienced a technical recession in the second half of 2018, when the economy contracted 0.2 percent in the third quarter and closed the year flat. It grew again with an increase of 0.4 percent in the first quarter of 2019. The “continued slowdown” in industrial output is the key worry for the German Central Bank. Industrial production fell 5.2 percent in June, its worst figure since 2009.

The economic deterioration has revived the debate in Berlin about abandoning the German dogma of a balanced budget and using government debt to support the economy or, at least, offset the negative effects of the looming recession.

Germany can, on paper, afford it after five consecutive years of surplus budgets and interest rates for long-term loans extremely attractive to the federal state.

 


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