Updated

October 29, 2014 14:38:40

Video: German growth fears, signs of weakness in the Eurozone powerhouse
(The Business)

Germany’s banks may have got the all-clear, but there are worrying signs of weakness in Europe’s powerhouse economy.

Growth in the second quarter went backwards, prompting calls for Chancellor Angela Merkel’s government to do more to stimulate growth and investment.

With markets already jumpy there are fears that, if Germany doesn’t change its ways, the eurozone could be dragged back into recession.

In recent years, Germany’s Chancellor Angela Merkel has been seen as the eurozone’s saviour – Germany the powerhouse of a struggling continent.

Now economists are lining up to ask whether the woman nicknamed “Mutti” – mum – may have been smothering growth.

“Germany fails to recognise that the relative health compared to the rest of Europe doesn’t mean that it’s doing its homework and that economic policy is right, and Germany needs to do its homework, still has a lot to do,” argued Marcel Fratzscher, the president of the German Institute for Economic Research.

Germany is now predicting growth this year of 1.2 per cent – that is down from 1.8 per cent.

The revised figures for next year are similar on the back of a second quarter which saw the German economy shrink by 0.2 per cent, and a significant slump of 6 per cent in exports in the month of August.

Those figures are causing jitters on the markets and there are concerns that the third-quarter figures could show another contraction, which would signal a technical recession.

“The negative third quarter for Germany will not be the end of the world. We still have a decent rate of growth of above 1 per cent for this year and next year,” said Mr Fratzscher.

“The much bigger worry for me is that we get into this phase of stagnation over the next five years. So growth rate within the euro area, but also within Germany, of below 1 per cent, so too little to really reduce unemployment sustainably, too little to allow banks to improve their balance sheets, too little to allow companies and private houses to reduce debt, and ultimately, too little also for governments to reduce debt.

“So the biggest risk I see currently is one of stagnation.”

However, the German population is not too worried yet.

“Since the economy in Germany is still so good, I have a good feeling,” said one Berliner.

“At the moment I am a bit concerned because if people think it’s bad, it is bad,” said another.

But yet a third dismissed such concerns.

“They’re probably less optimistic than they could be, because Germans like to whine or complain.”

At industrial and technological giant Siemens, they think the German way will prevail. 

“I’m not worried. German quality, as the saying goes, is good quality,” said apprentice Alex Lucas.

“That’s the thing I find about the German approach is that what we’re learning it’s got to be perfect. When you’re doing something, it can be half a millimetre out, but that’s still too much,” said fellow apprentice James Lane.

However, if the economic wheels do not start turning soon Europe could be facing another recession, one some will say was made in Germany.

Topics:
economic-trends,
germany,
european-union

First posted

October 28, 2014 12:55:49