Monday 21 October 2019 12:05 pm

German central bank warns economy may have shrunk in third quarter

The German economy may have contracted in the third three months to September, the country’s central bank has warned, leaving the powerhouse of Europe close to falling into recession.

Read more: Eurozone inflation falls to three-year low and below half ECB target

A slump in manufacturing and exports lay at the centre of Germany’s economic woes in the third quarter, the Bundesbank said in its monthly report.

Europe’s biggest economy has suffered in 2019 from the US-China trade war, a global economic slowdown, and weaker demand from China. These factors have hit the country’s export-driven economic model hard.

German GDP contracted in the second quarter by 0.1 per cent as exports slumped. Another contraction in the third quarter would mean the economy had entered a technical recession.

“Germany’s economic output could have shrunk again slightly in the third quarter of 2019,” the Bundesbank said in its report. “The decisive factor here is the continued downturn in the export-oriented industry.”

The central bank was not optimistic about the chances of a swift recovery. “Early indicators currently provide few signs of a sustainable recovery in exports and a stabilisation of the industry,” the report said.

“This raises the risk that the slowdown extends to a greater extent to more domestically oriented sectors.”

The German government has come under international pressure to reduce its sizeable budget surplus and invest in its economy to stimulate growth.

Germany’s budget surplus – the extent to which revenue exceeds expenses – was 1.9 per cent of GDP last year, figures released today showed.

Read more: German investor sentiment falls once again

Last week, the International Monetary Fund (IMF) said in its global economic outlook: “A country like Germany should take advantage of negative borrowing rates to invest in social and infrastructure capital.”

(Image credit: Getty)

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