‘Sick man of Europe’ Germany’s fourth slump is just one of ‘many problems’

German industrial output fell for the fourth consecutive month in August, stoking concerns of a potential recession by year-end.

Industrial production declined by 0.2 percent in August compared to the previous month, led by construction and energy according to the statistics office.

Franziska Palmas, senior Europe economist at Capital Economics said the drop in German industrial production in August was “better than it looked” as it was driven by volatile components.

However, she expects high interest rates and falling demand to lead to a further contraction in German industrial output in the coming months.

Ms Palmas said: “This is one of the reasons why we are anticipating German GDP to contract in both the third quarter and the fourth quarter this year.”

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At least two consecutive quarters of GDP contractions are defined as a technical recession.

Julian Jessop, an economics fellow at the Institute of Economic Affairs told Express.co.uk: “Even the Germans agree that Germany is the sick man of Europe! This has been a theme in the local press for many years.

“There are many problems, but the three most important are a failed energy policy, excessive dependence on export-led manufacturing, and overreliance on cheap migrant workers.

“These have been cruelly exposed by Russia’s invasion of Ukraine, the slowdown in China, and the loss of many foreign staff who returned home during COVID-19 and have not returned.”

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According to Capital Economics, August’s drop was mainly driven by sharp falls in construction (-2.4 percent) and energy (-6.6 percent).

Output excluding these two components was up by 0.5 percent month on month but still remained “weak”.

Production in energy-intensive sectors rose by an even larger 0.9 percent month on month but was still just 0.7 percent above its post-Ukraine-war low.

The German economy is projected to contract by 0.4 percent in 2023 – the only major European nation experiencing negative growth.

However, the outlook isn’t too optimistic for the UK either. According to the latest forecast from the International Monetary Fund (IMF), it is expected to have the lowest economic growth among the G7 group of advanced economies next year, behind Germany.

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While the IMF marginally upgraded its growth prediction for UK GDP this year to 0.5 percent, from 0.4 percent, it reduced its prediction of economic growth from one percent down to 0.6 percent amid pressure from higher interest rates.

Nevertheless, global GDP is expected to rise by three percent this year and 2.9 percent next year, according to the latest forecast.

Pierre-Olivier Gourinchas, director of research at IMF, said: “The global economy continues to recover from the pandemic, Russia’s invasion of Ukraine and the cost of living crisis. In retrospect, the resilience has been remarkable.

“Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled.

“Even so, growth remains slow and uneven, with widening divergences. The global economy is limping along, not sprinting.”

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