Germany CRISIS: Factories ‘in the GRIP of RECESSION’ – shock warning for Merkel economy

Fears for the German economy have intensified after the IHS Markit’s Purchasing Managers’ Index for the sector fell to 44.7 for March, the lowest since 2012 and well below a forecast of 48. The reading marked the third month in a row of contraction, with any number coming in under 50.0 indicating a section has shrunk. The latest bout of negative data came after the German economic growth forecast was slashed by nearly half with forecasters casting a shadow on the European powerhouse. Claus Vistesen of Pantheon Macroeconomics said the latest factory data confirmed “the story that manufacturing is in the grips of a recession”.

But he stopped short of claiming Germany was on the brink of a recession, as he claimed the economy looked to be “stabilising, or even improving slightly” in recent weeks.

The spirits of investors keeping a close eye on Germany were lifted this week after a German business confidence survey allayed some fears over the state of the economy.

Germany’s IFO Institute said its business climate index rose to 99.6, beating a consensus forecast of 98.5 and ending six consecutive months of decline.

The IFO data briefly lifted German 10-year yields into positive territory and helped European shares.

They also buoyed the euro, which rose against the US dollar and pound at the time of the release.

However, the latest set of data revealed confidence among factories was still looking unfavourable, falling for the seventh consecutive month to reach its lowest level in three years.

Exports from Germany have suffered in recent months from disputes between the United States and China, as well as ongoing Brexit uncertainty.

Car manufacturing has also taken a hit from stricter emission standards that have jammed new car registrations.

The German Council of Economic Experts for Economic Research has already announced it expects gross domestic product (GDP) to grow by only 0.8 percent in 2019, Focus Money reports.

This is down from a plus of 1.5 percent which was expected in November.

For 2020, GDP is expected by the German Council of Economic Experts to grow by 1.7 percent.

Christoph Schmidt, one of the advisers, said: “The German economic boom is over but a recession is not currently expected due to the robust domestic economy.”

The German economy skirted on the edge of recession territory at the end of last year following a string of weak data releases.

The nation narrowly avoided slipping into the red at the end of last year with latest figures from the Federal Statistics Office showing GDP remained unchanged in the final three months of 2018.

A recession is defined as two or more consecutive quarters of contraction, leaving investors keeping a watchful eye on the economy after it shrank 0.2 percent in the third quarter.

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