Storm Clouds

Weak German Growth is Europe’s Nightmare

Reichstag mit Wolkenstimmung, Reichstag and cloud atmosphere
Darks cloud gathered above Germany.
  • Why it matters

    Why it matters

    The euro zone could fall back into recession if growth of the German economy, Europe’s largest, slows down further.

  • Facts

    Facts

    • The IMF cut its German growth forecast for 2014 and 2015 after the recent economic weakness.
    • German industrial orders dropped 5.7 percent in August, the largest fall since January 2009. GDP fell 0.2 percent in the second quarter.
    • The Dow Jones and Nikkei index fell 1.5 percent after Germany’s weak economic data.
  • Audio

    Audio

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It started with a surprising 0.2 percent drop in Germany’s economic output in the second quarter of this year. It may end with years of stagnation for the euro-zone economy and its stubbornly high unemployment levels.

Germany has long been Europe’s economic motor, propping up the continent over much of the last five years as many of its southern neighbors struggled with high debts that almost led to the euro’s collapse. But what has been termed the “second German economic miracle” may now be coming to a halt – with major consequences for Europe as well.

According to Handelsblatt’s sources, a group of four leading German economic institutes on Thursday will slash their own forecasts for German growth for this year and 2015. The institutes will now predict growth of just 1.3 percent this year and 1.2 percent in 2015. That is down from 1.9 percent predicted half a year ago.

Economic data released over the past month points to a major slowdown of Germany’s economy, Europe’s largest and number four in the world.

A recession in Germany is now a distinct possibility, economists believe. With that, the prospects for another recession in the euro zone have increased as well.

On Tuesday, German industrial output showed the strongest decline in August since the height of the financial crisis in 2008-2009, sending stock markets down globally. The Dow Jones, S&P 500 and German blue chip index DAX all fell more than 1 percent on Tuesday, and Japan’s Nikkei index followed suit on Wednesday with a 1.4 percent drop. German industrial orders in August also recorded the sharpest drop since the crisis, data from the Federal Statistics Office showed this week.

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