Germany hits recession skids

Europe's largest economy, Germany, has proven no match for the worst global economic crisis in generations. Slowing demand across the world economy has hurt German exports, dragging the EU juggernaut into recession.

The juggernaut has juddered to a halt. In the end. Germany has proven no match for the whiplash caused by the worst global economic crisis in generations.

 

Sixteen months after a little-known German bank became the first European victim of the US subprime crisis, Europe’s largest economy has earned the dubious honour of admission into the EU recession club. The economy hasn’t been in such bad shape in 12 years.

 

Officially, it’s still a relatively small cabal. In the 27-nation EU, only Ireland and Denmark have officially crossed the recession Rubicon, as defined by two straight quarters of economic contraction.

 

In Germany’s case, the economy shrank a worse-than-expected half-percent in the third quarter. That, coupled with a revised second-quarter contraction of 0.4%, delivered the knockout blow.

 

But a host of other European nations have been on recession watch for a while. In these dire economic times, only sticklers for statistical purity wait for the “technical” definition of recession to kick in before pronouncing their verdict.

 

For most of us, the best benchmark for recession, unscientific as it may sound is: if it feels like recession, and looks like recession, and smells like recession – it’s a safe bet it’s a recession.

 

And by that standard, France, Italy, Spain and Britain, to name just a few heavy-hitters, are teetering precariously close to the edge – if they are not effectively already there. In all these countries, various combinations of withering credit, imploding property values, rising unemployment, declining consumer spending and scaled-back business investment are putting a chokehold on once-vibrant economies.

 

This week, the governor of the Bank of England, Mervyn King, one-upped the economic doomsdayers with a very grim assessment of his own. He forecast a 1.3% contraction in the UK economy next year, accompanied by shrivelling national incomes. He said more fiscal stimulus would be “perfectly reasonable” in the current “exceptional circumstances”.

 

Coming from a staid central banker, that’s akin to a battle cry for relief.

 

If Germany’s managed to hold the financial scaremongers at bay, it’s mainly thanks to its impressive export engine. Germany remains the world’s largest exporter – though it’s neck-and-neck with China, which looks poised to overtake it in the near future. Other European countries account for about 40% of German exports. Slowing demand for German products in Europe and hard-hit emerging markets has, economists say, undercut the country’s exports at a critical time.

 

There are other worrying numbers behind the recession stats: significantly, German factory orders plunged from August to September by 0.8%. That was the biggest drop since records began 17 years ago, according to Bloomberg. Industrial production meanwhile, fell 3.6% in September on an annual basis. And business confidence is at a five-year low.

 

A German panel of economic advisors, the so-called “wise men”, has warned that export growth could virtually stagnate next year, even as the government cautions that GDP overall may be close to zero. Some economists even see Germany's economy shrinking next year by 1.5%, which would be its worst performance in over 60 years.

 

These are hard times to be a juggernaut.