Germany’s economy contracted by 0.1% in the second quarter, and industrial output fell month-on-month by 1.5% in July.
If Europe’s biggest economy tips into recession, the rest of the eurozone is likely to suffer.
The US-China trade war has been a key driver of the decline, as both countries are huge export markets for Germany.
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Germany shrunk by 0.1% in the three months to June. The decline might not seem like much, but given the country is the world’s fourth-biggest economy and Europe’s largest, a slowdown is a bad omen for global markets.
That’s mainly because the eurozone is heavily reliant on a strong German economy. If it’s “teetering on the edge of a recession,” as Capital Economics Chief European economist Andrew Kenningham said, all eyes should be pointed to Europe’s industrial heartland.
Why has Germany been hit so hard by the trade war?
The German economy is much more globalized than the rest of the world, according to Capital Economics. As a result, international trade tensions weigh on its economy.
See more: Three of Europe’s biggest economies are probably in recession — and the ECB is out of bullets
Germany is particularly dependent on exports, a lot of which pass through non-eurozone economies such as China and the US. It provides a lot of equipment and machinery to China, which in turn makes products that are shipped across the world to destinations including the US.
As a result, if China weakens its currency and produces fewer goods in anticipation of weaker overseas demand, sales of German industrial products fall, damaging a key sector of Germany’s economy. Proof of the trade war’s impact can be seen in the 1.5% month-on-month decline in German industrial output in June.
All this means that if Germany does head towards …read more
Source:: Business Insider