Earlier this month, we learned that the German economy contracted for the second quarter in four in Q2.
That wasn’t a surprise, but it did confirm that recession fears are real. It also validated a string of poor data which hasn’t abated since.
On Monday, for instance, the latest Ifo survey showed business confidence continues to collapse.
Now, we have the details from Germany’s Q2 GDP report and it will come as no surprise that exports were a huge drag.
“The development of foreign trade slowed down economic growth in the second quarter. After seasonal and calendar adjustment, price-adjusted exports were down 1.3% from the preceding quarter”, the Federal Statistics office said Tuesday, adding that YoY, price-adjusted exports were down 0.8%, “the largest decline recorded in the last six years”.
Ultimately, net trade was enough of a drag to offset gains in other areas, cementing the contraction.
Although this doesn’t necessarily tell us much we didn’t already know, it does underscore the extent to which the trade war is serving as a wet blanket on the world’s most important economies. The situation in Germany is increasingly dire and Berlin is still demonstrating a reluctance to loosen the fiscal purse strings, preferring to wait it out and see how bad things actually get.
It doesn’t help that the Trump administration continues to dangle the auto tariff threat over the EU, although he struck a somewhat conciliatory tone on that this week.
If the readily observable malaise in the manufacturing sector does finally spill over to services, a recession will be virtually guaranteed. The latest PMI data out of the country was actually better than expected, but the August numbers nonetheless marked the eighth straight month in contraction for the manufacturing gauge, while new orders fell to 41.6. Another month below the 50 line, and the new orders gauge will have spent a year in contraction.
The ECB will of course ease further in September, but the real question is whether Germany will finally decide that getting paid to borrow is a good enough incentive to abandon the “black zero” fiscal policy in the interest of averting (or, at the least, ameliorating) a downturn.