German Economy Likely to Shrink in Third Quarter and Enter Recession, DIW Says

(Bloomberg) --

German output will probably shrink by 0.2% in the third quarter, putting Europe’s largest economy into recession, according to the DIW economic institute.

A DIW gauge of activity fell to 89 points in August, the lowest since late 2012, pointing to another contraction after GDP declined 0.1% in the April-to-June period, the institute said in a statement.

“Manufacturing is in a crisis and is slowly but surely dragging services down along with it,” said Claus Michelsen, DIW’s head of forecasting and economic policy.

Weak export demand, particularly in the European Union, is hurting German companies while the threat of a no-deal Brexit, global trade disputes and Italian political instability all add to the pain, said Simon Junker, another DIW economist.

On the plus side, domestic demand is holding up as consumers benefit from “fiscal impulses” and the construction industry is in good shape, DIW said.

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