Once the powerhouse of the European Union, Germany is now on the footsteps of a possible recession. Germany's central bank (Bundesbank) warned that the state of Europe's economy and the effects of the U.S. - China trade war along with Brexit have placed considerable pressure on the nation's economy.
Germany's economy contracted and GDP (gross domestic product) fell by .01% in Q2'19. Chief economist at the Dutch bank ING, Carsten Brzeski, commented: "Today's GDP report definitely marks the end of a golden decade for the German economy". The labor market still remained favorable while industrial output declined more than 5% compared to the previous year. Additionally, UK business decline also placed weight on already weak export. Germany relies heavily on exporters who sell finished goods to the United States and China, who are currently in the midst of a trade war. Brzeski added that the uncertainty surrounding these trade conflicts was a top negative factor for the decline in Germany's economic activity. Germany is not the only nation affected by these events - last month, the International Monetary Fund cut its global growth forecast for 2019 and 2020.
Additionally, lower global demand for automobiles, especially in China, has posed quite a few problems for the export - heavy nation. German car-makers such as BMW, Daimler, and Volkswagen, who are making a larger investment in environmentally friendly automobiles are hit especially hard. Kit Juckes, a strategist at Societe Generale, has described all of the aforementioned factors as a "perfect storm" for Germany.
Commerzbank, Germany's second biggest bank, announced that it has doubled the amount of money that it allocated in Q2 to account for loans that will not be repaid. Economists predict that the European Central Bank will cut interest rates and possibly restart a bond buyback program to stimulate economic growth.
Despite all of this however, Germany's economy is expected to remain buoyant for now, with the government predicting net growth of .5% for 2019 as a whole. Salaries have remained stable which has helped maintain consumer spending levels.