MERKEL CRISIS: Germany facing RECESSION risk ahead of crunch growth figures

MERKEL CRISIS: Germany facing RECESSION risk ahead of crunch growth figures

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The country’s Federal Statistics Office will publish the Gross Domestic Product (GDP) numbers for the final quarter of 2018. This will answer the vital question of whether the EU’s biggest economy at £3.1trillion has just barely managed growth or has recorded a decline for the second successive quarter. Germany’s economy shrunk 0.2 percent in the third quarter of last year, largely due to slumps in the lucrative car sector, not helped by growing trade tensions between the US and China.

The start of the German economy into 2019 has been a major disappointment so far. The development of several key cyclical indicators is telling us that the German economy is drifting towards recession right now

Deutsche Bank

Last week, Deutsche Bank – Germany’s biggest lender – warned the country’s economy is dangerously close to sliding into recession, describing the start of 2019 as a “major disappointment”.

Germany’s biggest lender expects the economy to contract further during the quarter, with new business surveys pointing towards souring moods at companies and worsening expectations for new orders.

Economists, including Sebastian Becker, wrote in the report: “The start of the German economy into 2019 has been a major disappointment so far.

“The development of several key cyclical indicators is telling us that the German economy is drifting towards recession right now.”

Germany recession Angela Merkel

Germany news: Angela Merkel will be hoping for positive economic growth figures (Image: GETTY)

Deutsche Bank is expecting the same 0.2 percent contraction to start off 2019. A recession normally results from two consecutive quarters of economic decline.

The bank added in its note: “Given much weaker than expected January business surveys and in particular the slump in their more forward looking components we are now expecting the German economy to contract again in Q1 2019.

“Global economic policy uncertainty jumped in December marking a new all-time high.”

“Most of the global trouble spots (Brexit, Chinese growth concerns) have taken a turn for the worse in January, making it very hard to assume a fundamental improvement during the reminder of Q1.”

Alarm bells are still ringing in Germany and the European Union as a whole, as several negative indicators point towards serious economic problems for Germany.

At the start of this year, the German government sparked fears of financial turmoil by reducing its GDP forecast for this year from 1.8 percent at the end of 2018 to just one percent.

Germany news Deutsche Bank

Germany news: Deutsche Bank warned the country is ‘drifting towards recession’ (Image: GETTY)

Last week, German output surprisingly fell in December for the fourth consecutive month, with data from the Federal Statistics Office revealing industrial output slumped 0.4 percent from November and 3.9 percent from December 2017.

Thomas Gitzel of VP Bank Group, warned: “A positive GDP reading in the fourth quarter of 2018 now looks tight.

“A positive industry reading would have reduced the chance of a negative GDP reading in the fourth quarter.”

This latest gloomy reading came after Germany’s manufacturing sector plunged into contraction territory in January, dropping to 49.7 points from 51.1 in January, according to the latest figures from IHS Markit.

But despite this, Germany’s finance minister has rejected claims the country is heading for recession.

Olaf Scholz claimed the country’s economy is “continuing to move forward”, with employment at a “truly remarkable high”.

Germany news Olaf Scholz

Germany news: Olaf Scholz attempted to calm fears over the country’s economy (Image: GETTY)

But he acknowledged slowing expansion would eventually lead to increased pressure on Germany’s budget.

Mr Scholz told the Financial Times: “We can afford a lot, but not everything, and not at the same time.”

The finance minister, who is also deputy leader of the German Social Democratic party, also rejected calls from Angela Merkel’s coalition partner the Christian Democrats to cut taxes in order to stimulate the economy and see off any potential economic downturn.

Finance ministry bosses have warned the German government could face a shortfall of £21.6billion by 2023 as tax revenues are likely to be below previous estimates.

Germany is also hoping there is a breakthrough in negotiations between Britain and the EU, as a leading study revealed a no-deal Brexit could put 100,000 jobs at risk in the country, with the lucrative motor sector hit hardest.

Germany news Angela Merkel

Germany news: Angela Merkel’s CDU party had called for taxes to be cut to stimulate the economy (Image: GETTY)

The Halle Institute for Economic Research said the manufacturing sector would be particularly vulnerable because of uncertainties around future trading relationships.

Germany sold 770,000 vehicles to the UK in 2017, with 15,000 jobs reliant on this lucrative trading area.

The industry has the third highest car production in the world and fourth highest total motor vehicle production.

Oliver Holtemöller, a lead researcher in the study, said: “In no other country is the effect on total employment as great as in Germany, where around 100,000 people are affected.”

Additional reporting by Monika Pallenberg.

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