Germany’s Economic Outlook Dims: Recession Fears Rise as Business Activity Plummets
Germany's economy faces a significant downturn in business activity, sparking concerns of a looming recession.onomy to slide back into a recession.
Germany’s economy has experienced a significant downturn in business activity this month, marking the most severe contraction in over three years. This has raised concerns about the potential for Europe’s largest ec
August’s Purchasing Managers’ Index (PMI) for Germany, tracking manufacturing and service sectors, dropped to 44.7 from July’s 48.5. This is the lowest figure since May 2020, amid pandemic-related restrictions, indicating economic contraction.
The survey highlights manufacturing’s four-month decline and the first dip in service sector activity in eight months. Cyrus de la Rubia, Hamburg Commercial Bank’s chief economist, noted fading hopes that services could buffer the economy as the sector edges towards a manufacturing-like recession.
This data compounds evidence of renewed struggles following Germany’s narrow emergence from a winter recession. June saw an unexpectedly significant slowdown in industrial production, driven by automotive sector contraction.
Germany’s challenges ripple across the Eurozone, where 19 countries share the euro currency, risking a post-growth recession. In the broader region, the initial August PMI for the euro area fell to 47, the lowest since November 2020.
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Both surveys highlight service sector inflation due to rising wages, potentially deterring the European Central Bank from halting planned interest rate hikes.
Germany’s situation appears more severe than other European nations, facing emerging “stagflation” with high inflation and sluggish growth.
De la Rubia notes economic contraction with resurging prices spells trouble, particularly as the Eurozone’s largest economy struggles to control inflation.
Andrew Kenningham of Capital Economics suggests a possible euro area recession in the year’s latter half, with Germany’s downturn being the most pronounced.
Alexander Stefanov
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