Recession looms over Germany, trade tensions pull manufacturing to a seven-year low

The slump in the global trade market affected the German manufacturing sector, which is one of the leading exporters in the world. The horrors of recession loom over the nation as its economy reached seven-years low. The Eurozone Markit’s Purchasing Managers’ Index (PMI), monthly performance of manufacturing and services sectors, reflected that both the sectors slid down to 51.4 from 52.6 in the last month; manufacturing alone fell from 45.0 to 43.1  Both the sectors put together account for more than two third of the German economy.

The recession has technically stepped into the economy as the analysis show decline in the nation’s Gross Domestic Product, in its second and third quarter. What has kept the economy going is Germany’s resilient service industry, strong labour market and healthy household spending. But major jobs cuts by Deutsche Bank and slump in trading market warn of troubles ahead.

“The health of German manufacturing went from bad to worse in July,” said Phil Smith, Principal Economist at IHS Markit. According to him, massive drop in exports led to this scenario.

US-EU trade is believed to be one of the key factors in hampering the growth rate of the largest economy in Europe. The trade tiff between the two has hit the country’s backbone, automobile industry. US president Donald Trump threatened to impose extra tariff over the cars imported from Europe, which majorly are manufactured in Germany. Besides, uncertainty over Brexit negotiations is also driving the economy down.

“The automobile industry is the business sector which is under pressure the most,” IHS Markit economist Chris Williamson said. 

In the ripple effect to German manufacturing crisis, the euro zone government bond fell to all-time low on Thursday. It shook investors’ faith in the market and simultaneously building pressure over the European Central Bank to adopt more dovish policy.

The German economy is expected to grow the least in 2019 as compared to the last six years, the government predicts overall economic growth of 0.5 percent for this year and a rebound to 1.5 percent in 2020.

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