- Recession risks heighten in Germany with the quarterly economic growth posting at 0.0%.
- Coronavirus to keep the manufacturing sector under pressure in Germany in 2020.
- Reduction in state spending and weaker private consumption may require fiscal stimulus in the upcoming months.
Destatis announced the German preliminary GDP quarterly report on Friday that showed the economy to have weakened in the last quarter of 2019. Much of the weakness was attributed to lower state spending and downbeat private consumption. Friday’s data suggested that Germany is currently facing renewed risks of a recession amidst the conservatives currently looking for a new leader to succeed Chancellor Angela Merkel.
The largest European economy is hit on two fronts; the manufacturing sector and the automotive sector with the former being under pressure due to a sharp decline in exports while the latter being weighed due to a rising change in trend to the more expensive electric cars.
Decline In State Spending And Private Consumption Fuels Recession Risks
According to economists, state spending and private consumption have so far supported the economy but if fiscal 2020 saw a decline in these two measures, the risk of recession in Germany will rise significantly.
A positive note in Friday’s quarterly gross domestic product (GDP) was the revised data for the Q3 that suggested a higher 0.2% growth as compared to 0.1% that was announced previously. According to the Federal Statistics Office, spending on equipment and machinery saw a drop in the recent quarter as compared to that of 2019’s third quarter. While exports remained under pressure in Q4, the construction sector highlighted broader investments in the recent quarter.
In the past few months, Merkel’s administration remained committed to avoiding adding fiscal stimulus in order to ensure a sustainable return of economic growth in Germany. In the upcoming months, however, if the economy remains sluggish, the need to implement such a strategy will become inevitable. The recent outbreak of Coronavirus in China, for example, is likely to keep the manufacturing sector under pressure in fiscal 2020.
German Wholesale Price Index (WPI) Suggests Improvement In January
In separate news, the German wholesale price index (WPI) monthly report on Friday showed an improvement to 1.0% in January. The figure was capped at no-change (0.0%) in December, following which, analysts had anticipated a 0.1% growth in January.
EUR/USD remained under pressure in the forex market on Friday. While the currency pair climbed to around 1.0860 earlier in the day, it was followed by a decline back to 1.0835 level, around which it is currently settling. The drop back to near the daily low was largely attributed to the optimism of the U.S retail sales and consumer sentiment that sent the U.S dollar index above the crucial 99.0 mark.