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‘Scary’ German output figures raise recession fears

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'Scary' German output figures raise recession fears

There could be dark days ahead for Germany’s economy [Kai Pfaffenbach/Reuters] Steep drops in car-making and metal production led German industrial output to fall more than expected in June, stoking fears of Eurozone recession. 

The fall is a sign that Europe ‘s largest economy contracted in the second quarter as exporters get caught up in global trade disputes.

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Industrial output dropped by 1.5 percent in the month – a far steeper decline than the 0.4 percent fall forecast in a Reuters poll of analysts, figures released by the Statistics Office showed on Wednesday.

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The continued plunge in production is scary,” Bankhaus Lampe economist Alexander Krueger told the Reuters news agency, adding that a recession in the manufacturing sector was likely to continue due to the escalating trade dispute between China and the United States

Both countries are important export destinations for German manufacturers, which means that the tit-for-tat tariff dispute between the world’s two largest economies is having a disproportionately large effect on German goods producers

The longer this continues, the more likely it is that other sectors of the economy will be dragged into this. Growth forecasts for Germany are likely to be trimmed further,” Krueger said

Production in construction fell 1.1 percent in the second quarter while energy output dropped 5.9 percent in the same period.

“Industry remains in an economic downturn,” the economy ministry said. 

Prelude to recession? The figures came after German industrial orders on Tuesday exceeded expectations in June, but the economy ministry cautioned that the sector had not yet reached a turning point as a slowing world economy, international trade disputes and Brexit uncertainty are taking their toll

Commerzbank economist Ralph Solveen said the industrial figures supported expectations that the German economy shrank slightly in the second quarter and that manufacturing output was likely to decline also in the coming months

“A look at the individual sectors shows that the crisis in the automotive sector is continuing unabated,” Solveen said, adding that car production had not recovered from the slump caused by problems associated with last year’s switch to a new emissions measurement standard

“However, the main reason for this weakness is now likely to be significantly weaker foreign demand,” Solveen said

The German government expects the economy to grow by a meagre 0.5 percent this year and rebound with a 1.5 percent expansion in 2020

Andreas Scheuerle from DekaBank said the industrial data suggested the economy contracted by 0.2 percent in the second quarter after expanding by 0.4 percent in the first three months of the year

“We assume that this is the prelude to a technical recession,” Scheuerle added. A technical recession is normally defined as at least two-quarters of contraction in a row

The Federal Statistics Office will release preliminary gross domestic product figures for the April-June period next Wednesday

SOURCE: News agencies