The Bundesbank – Germany’s central bank in Frankfurt – has warned that the German economy could slip into recession this autumn, with Brexit partly to blame.
Data released last week showed that Europe’s largest economy contracted by 0.1% in Q2 2019. This places Germany half of the way along the road to recession, and the Bundesbank’s monthly report has done little to dispel fears that this will happen.
The Bundesbank reported that industry in particular was behind the contraction, and specifically named Brexit as one of the key reasons for the loss of growth.
“The downturn in the industry has increased somewhat because demand from abroad has fallen.
In particular, exports to the United Kingdom were weak in the spring. One reason for this was the Brexit deadline scheduled for the end of March. This had resulted in large purchases in the UK in the winter months.
This led to a counter-movement in the spring.”
Deutsche Bank also cut its growth forecasts on the German economy recently, and has since said they believe Germany is already in a ‘technical recession.’
The warnings come following a painful week for stock markets. Germany’s DAX Index lost 600 points last week as investors turned to safe haven assets in anticipation of recession. Today however has actually seen those losses virtually recovered, thanks to increased talk of stimulus across Germany and Europe. Germany’s finance minister, Olaf Scholz, said at an open event on Saturday that Germany could muster €50 billion of additional spending if needed to stave off economic crisis.
Germany is not the only country with the fear of recession looming over it; with the UK, Sweden, Hong Kong, Italy and South Korea all struggling with their economies. The uncertainty has driven up the price of gold and silver significantly in the past three months, with investors turning away from stocks to protect their money.
Brexit currently has no end in sight either, with Labour leader Jeremy Corbyn calling for a general election to stop a no-deal Brexit. A no-confidence vote is achievable, especially considering the government has a working majority of just ONE in the House of Commons, but with the Lib Dem leader Jo Swinson opposed to even a brief Corbyn-led national government to organise a general election, which could allow Prime Minister Johnson to push on with Brexit come October 31st.
With Brexit seemingly damaging Europe’s strongest economy, the chaos surrounding its eventual conclusion will do little to help recover confidence, and with Eurozone growth in general slowing down to 0.2%, having its largest economy fall into recession will likely drag down that growth even further, or potentially cause a Eurozone recession.