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Is Germany Entering Recession? Eurozone Economy Slowdown in September

Figures from across Europe point to the region’s economy slowing down during September. Among the worrying indicators were the sharpest drop in manufacturing output and a fall in business executive optimism.

Fears of a no-deal Brexit are regarded as being part of the problem. However, there are other issues to take into account as well. 

The Situation in Germany

One of the main areas of concern in the Eurozone is around the situation in Germany. Long regarded as being an economic powerhouse of the continent, the German economy has been in a slump lately.

In fact, it was reported that the private sector activity in this country is in its poorest position since 2009. The slowdown here has been going on for the last year, but the signs are that it has worsened in the last few months.

The purchasing managers’ index (PMI) for Germany is a crucial indicator of whether the manufacturing is growing or not. 50 is the key number, as anything below this confirms that the sector is contracting. In August it sat at 43.5 but fell further in September to 41.4.

The overall PMI for Germany includes the service industry as well as manufacturing. A relatively strong performance by the services sector helped to keep it above 50 in August. However, in September it dropped to 49.1.

The Car Industry is Hit Too

 

The effects of the Chinese-US trade war have hit the car manufacturing industry badly. Rising tariffs mean that these firms are struggling to export as many vehicles as before.

 

Indeed, the head of almost two dozen European automotive business groups got together to warn about the dangers of a no-deal Brexit. They said that it would cause a massive increase in their costs and could lead to widespread job losses in the UK and the rest of Europe.

 

Overall Figures for Europe

 

The Eurozone PMI came down from 51.9 in August to 50.4 in September, leaving it dangerously close to that all-important 50 mark. This is the poorest level of growth in manufacturing and services since 2013. Meanwhile, marketing output across the whole of the EU fell to its lowest level in over 80 months.

 

Upon release of these figures, the Euro dropped against the US Dollar, falling below the $1.10 mark. Job creation across the zone is also lower than it has been since the start of 2015. With concerns like these, it is no surprise that international commercial debt recovery is growing in importance.

 

What Will Happen Next?

 

Some analysts point to these numbers as proving that the most recent interest rate cuts were fully justified. However, there is also a feeling that further stimulation is needed to help the Eurozone avoid slipping into recession.

 

In Germany, the chances of a recession appear to be growing. Some predictions put their third quarter GDP increase at 0.1%, which could be just enough to avoid recession for the moment.

 

The main fear is that if Germany goes into recession then the rest of the Eurozone could quickly follow it. This means that the next economic figures from Germany will be closely scrutinised all over Europe.