Is Germany about to enter recession?

by Chris Becker

One of the most closely watched economic prints on the calendar, the monthly German ZEW Survey, was released on Wednesday. The continued Brexit imbroglio is obviously weighing on the dominant European economy, as does Trump’s Jacksonian trade policies which has seen the “current condition”  factor flop to a new four year low, presaging a fall in GDP:

From the FT:

“It is remarkable that the ZEW Economic Sentiment for Germany has not deteriorated further given the large number of global economic risks,” ZEW president Achim Wambach said.

Not exactly upbeat is it? This comes after the weaker growth in China in 4Q last year with the German economy itself barely ticking over at 1.5% per annum, the lowest in five years. The IFO Institute has lowered its 2019 forecast to 1.1% while the German government will update its 2019 economic growth forecast next week.

After a dreadful industrial production print earlier this month reinforcing the sombre tone, some blame could be put down to climate change, with research house Pantheon Macroeconomics suggesting the lower level of the Rhine is to blame for contraction.

From Bloomberg:

One main factor behind the slump in the German manufacturing sector was the failure of inflation, particularly producer price inflation — which tracks cost increases in certain areas of manufacturing — to drop in line with the tumbling price of oil in recent months. That’s in part, Pantheon says, because of what’s happening to the Rhine, which has seen its water levels drop after a drought during the summer and fall.

The river is fed by glaciers and rain. But alpine ice flows have been plunging, Wilfried Hagg, a glacier expert at Munich University.

“The Alps are warming at an even faster rate as snow and ice melts,” Hagg told Bloomberg on Friday. “A warming climate means that incidents like the low river levels this summer are more likely to occur.”

The Rhine is crucial for German industry because it provides not only an avenue for the distribution of raw materials to German manufacturers but also a means of transporting finished goods to Europe’s largest port, Rotterdam, which sits at the river’s mouth.

Low water levels in the Rhine, Pantheon says, effectively amount to a “supply shock in German manufacturing,” by lowering the availability of key goods needed for the sector, which come to factories situated on the river by barge. These barges need a depth of water to traverse the river above current levels.

Maybe it was too late for the Germans to go green after all…

The European Central Bank meets later tonight, Australian time and President Mario Draghi is expected to hold a much more dovish tone as the beleagured central bank has almost no ammunition left in the chamber to arrest the declining fortunes of the continent as GDP growth stalls to a standstill:


There is almost no desire for higher interest rates at this time, nor any actions that would further decrease sentiment weighed down by a significant deterioration in the Euro trade balance, which is set to fall even further even if there is a magical unicorn deal for Brexit in the coming months. Super Mario is going to have to wait a lot longer for any “normalcy” – if there’s such a thing in a union currency without monetary union – to interest rates.

Most importantly, if Trump begins another salvo in his trade war the target most in sight is Europe, which was the main source of demand for exports in 2018, with a significant trade imbalance with the USA:

Absent any other geopolitical risk, the German powerhouse may drag down the whole continent come 2019.




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  1. All good, Mario just needs to cut rates…. oh.

    Germany could always loosen the fiscal purse strings (tight ass germans!).

      • Even years after the migrant crisis, 40% of them are still unemployed:

        When looking at the welfare and other Government services they have taken in, they are surely a negative factor for Germany’s economy, and will become a multi-generational one.

        If Germany wanted bodies, they should have set a country IQ cutoff of 90:

        There are millions of Chinese, Vietnamese, Ukrainians, Russians they could have taken in instead. Heck, just allow open borders with certain white-listed countries, but make the migrants agree that they will never receive a cent of welfare in their lives. Ensure 60% of all migrants from all countries are female and there will -zero- social friction.

  2. Need another million economic refugees. Look and learn from the Aussies it’s a no brainier…

    • You missed the first step – a stimulus war machine to rattle the migrants to wanting to move. Syria is done, who’s next? Qatar? More efficient than Aus too – no need for boats.

  3. Ridetheclutch98

    It’s no coincidence two of the largest beneficiaries of decades of incompetent US economic management (being China and Germany) are now feeling the strain under an America First economic and political ideology. US growth rates (as measured by GDP) have inversely correlated with Chinese and German growth rates. In a zero sum game world, your loss is my gain. Trump and the US economy is on the ascendancy for now.

    • C.M.BurnsMEMBER

      Germany’s recent economic “miracle” has F-A to do with the US; and everything to do with the euro. Which trades significantly lower than the old deutche mark. Granting it a permanent and significant trade advantage.

      • +1 Bingo!

        The real coincidence that Mr Clutch missed is that they’re both noted currency manipulators; albeit, in Germany’s case it is a little more opaque via the EU system. What he also fails to understand is that they are both coming from a lower cost base (competitive) in a globalised world; many forget that it was only in the 90s that Western Germany finally reunited with it’s neglected and unloved brother in the East.

      • +1 and they are well educated, hard working with good infrastructure unlike the banana republics of the South

    • ridetheclutch – you had me up til the end of your first sentence.
      US growth rates are not inversely correlated to China/Germany, the correlation is very positive over almost any timeframe
      No such thing as a zero sum game world – trade increases prosperity, new resources are exploited all the time, increased population etc. The “pie” gets bigger, its not a fixed quantity.
      Trump and the US economy are on the downward stretch, by any objective fact, popularity polls/election trends/GDP growth/industrial production/etc etc
      As CM Burns adds above, Germany benefited more from depreciating the Mark into the Euro, but like many other nations, all have been lifted higher due to multilateral trade agreements – in aggregate that is.

      • … and more proof, perhaps, that contrary to popular opinion, the UK does in fact have more leverage in Brexit negotiations?

  4. I get this sense that germany was like the big bank for euro countries to borrow and the other countries were like the RE investor class in aus who leveraged through the roof cvia austerity that they could not afford. And just as in aus real estate, they have now reached their saturation point and it is taking their bank down spectacularly.

  5. Europe’s problem is simple.

    Social security taxes.

    If I could pay $20,000 for a worker and $10,000 or 50% in social security taxes, the net cost to employ of $30k was still lower than an American at say $50k.

    Now costs are rising and Europeans are demanding raises, but that entails a huge increase in total costs due to social security taxes.

    Social security taxes need to be scrapped and replaced by income taxes. Then the true cost and burden of the welfare state will be exposed to individual workers who can vote it all down.

    • Yeah because Europe is a single entity with a single tax policy – and no income tax.