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German Recession Risk Rises as Economic Pain Spreads to Services

Germany’s economic woes are becoming more pronounced, with a sharp slowdown in services.

German Recession Risk Rises as Economic Pain Spreads to Services
Workers use pallet trucks as they dismantle Berlin’s Christmas market in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)  

(Bloomberg) --

Germany’s economic woes are becoming more pronounced, with a sharp slowdown in services suggesting the pain from its industrial crisis is spreading.

While the weakness is still largely centered on manufacturing, a downward revision to services in September adds to the negative news coming from Europe’s largest economy. IHS Markit said the figures mean a technical recession “now looks to be all but confirmed.”

A similar picture is taking over the broader European economy as Brexit hangs over the region. Euro-area services growth also slowed last month, while the U.K. saw an unexpected contraction, a warning that companies may not be able to take more of the uncertainty that’s already crippling business.

German Recession Risk Rises as Economic Pain Spreads to Services

In another worrying development, a measure of euro-area inflation expectations dropped for a fifth straight day, putting it on course to hit a record low. German bonds rose, with the 10-year yield slipping 4 basis points to -0.58%. They’ve been below zero for five months, reflecting growing concern about the outlook.

The spillover to services is worrying for the euro area, where trade tensions and weaker global growth are already having increasingly devastating consequences. The European Central Bank deployed fresh monetary stimulus last month to support growth, and its vice president, Luis de Guindos, said Thursday that risks are still tilted to the downside.

The latest PMI from Markit, which earlier this week showed manufacturing mired in a worsening crisis, mean the euro region is close to stagnation.

“The euro-zone economy ground to a halt in September,” said Chris Williamson, an economist at IHS Markit. He estimates that growth was 0.1% at best in the third quarter, and “the risk of recession is now very real.”

Trade remained a key source of concern for companies, and a decline export orders accelerated in September.

While businesses are continuing to hire workers, they are “increasingly looking to reduce overheads and tighten belts in the face of falling demand and an uncertain outlook,” Williamson said.

--With assistance from Simbarashe Gumbo and Piotr Skolimowski.

To contact the reporter on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Catherine Bosley

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