Germany Is Flirting With Recession After Investor Confidence Falls

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(Bloomberg) --

Investor confidence in Germany’s economic outlook worsened for a fourth month after a string of disappointing figures raised recession risks.

Europe’s largest economy probably contracted in the second quarter as slower global growth and uncertainty from a U.S.-China trade war weighed on demand. Tuesday’s report showing expectations plunged to the lowest since 2011, below even the most pessimistic forecast in a Bloomberg survey, is the latest to capture the gloom surrounding the nation’s manufacturing slump.

Germany Is Flirting With Recession After Investor Confidence Falls

German stocks extended declines following the ZEW reading, which underscored concerns about the nation’s economy. Alongside trade fears and expectations for more European Central Bank stimulus, that’s helped push yields on German debt to record lows below zero.

“The most recent escalation in the trade dispute between the U.S. and China, the risk of competitive devaluations, and the increased likelihood of a no-deal Brexit place additional pressure on the already weak economic growth,” ZEW President Achim Wambach said in a statement. “This will most likely put a further strain on the development of German exports and industrial production.”

What Bloomberg’s Economists Say

“Today’s below-consensus ZEW expectations figures, which have a lead on actual GDP, suggest a material further deterioration in growth momentum may be coming later this year.”

--Jamie Rush.

Major companies including Continental, Lufthansa and Daimler have all slashed their outlooks in a warning that momentum might slip further. Deteriorating growth prospects -- Germany is forecast to expand a mere 0.6% this year -- have fueled calls for more fiscal stimulus.

So far the government has been reluctant though. Chancellor Angela Merkel “has never left any room for doubt” that she stands by the goal of a balanced budget, her chief spokesman, Steffen Seibert, said on Monday, when asked whether the administration was considering issuing new debt to fund environmental projects.

At the European Central Bank, policy makers have indicated they’re prepared to provide more monetary support to prop up the euro-area economy. Interest-rate cuts and asset purchases could be announced as soon as September.

©2019 Bloomberg L.P.

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