Germany’s woes prompt fear of Eurozone recession

Chris Papadopoullos
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German chancellor Angela Merkel has rejected calls for Germany to run a budget deficit
The Eurozone could be in the midst of recession for the third time since 2008, with data released yesterday pointing to weak growth and deteriorating confidence.

Industrial production in the currency union fell by 1.8 per cent in August after a modest rise in July, acc­ording to figures released by Eurostat. There was an alarming de­cline of 4.8 per cent in the production of capital goods.

Separately, the euro area’s biggest economy – Germany – cut its growth estimate for 2014 from 1.8 per cent to 1.2 per cent yesterday.

EU members recently came under pressure from European Central Bank boss Mario Draghi who de­manded further structural reform from all states and looser fiscal policy from the German state.

The calls were echoed last week by Christine Lagarde, head of the International Monetary Fund.

But Chancellor Angela Merkel yesterday insisted that Germany would run a balanced budget in 2015.

The Zew indicator for economic sentiment for Germany fell by 10.5 points in October and now sits at minus 3.6. This marks a tenth successive fall. German GDP contracted by 0.2 per cent in the second quarter of 2014 while France failed to grow in the first half of the year.

Meanwhile, annual inflation in France fell to 0.4 per cent in Sept­ember suggesting that total spending in the economy is failing to recover.

Other survey data, such as Markit’s purchasing managers index – a widely regarded indicator – pointed to a possible contraction in the single currency area last month.

After the Eurozone economy stagnated in the second quarter, there is now a risk that it contracted in the third quarter, while data has been poor in fourth quarter too.

If growth was negative in the third and fourth quarters, this would satisfy economists’ definition of a recession – two consecutive quarters of negative growth.

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