• Germany's news in English

Indicator suggests Germany may escape recession

AFP · 19 Aug 2008, 13:40

Published: 19 Aug 2008 13:40 GMT+02:00

Facebook Twitter Google+ reddit

The ZEW research institute said its index of economic sentiment stood at minus 55.5 points, up 8.4 points from July when the survey hit its lowest level since its creation in December 1991.

"The improvement ... signals that fear about an economic downturn among financial market experts is contained. The recent fall in the price of oil and the weakening of the euro against the dollar must have dampened economic concerns about the economy," the ZEW said.

"Market experts have not been particularly taken aback by the negative growth rate of the second quarter. They expect weaker but all in all solid economic conditions and do not fear a recession."

The ZEW forecast, based on a survey of 300 analysts and institutional investors, was better than expected with economists polled by Dow Jones Newswires looking for a reading of minus 62 points.

Data out last week showed that the German economy, which accounts for a third of total eurozone output, went into reverse in the second quarter for the first time for nearly four years, contracting by half a percent.

The data sent shockwaves through the markets on fears that Europe's powerhouse was headed for recession a year after the subprime crisis began, dragging the entire 15-nation single currency area with it.

With Germany's eurozone partners such as France, Italy, Spain and Ireland also in the doldrums or worse, the bloc's gross domestic product (GDP) fell 0.2 percent in the second quarter, the first contraction since monetary union.

If an economy shrinks for two consecutive quarters it is officially in recession.

Two of the main culprits were rampant energy and food prices putting a squeeze on companies and consumers alike, pushing up prices for manufacturers and blowing a hole in household budgets.

And adding to the squeeze on firms has been the euro's seemingly inexorable rise against the dollar over recent months.

A stronger euro means that exporters get fewer euros for every dollar they are paid for their products, forcing them to raise their prices to levels where they are less competitive than those of their rivals.

But in the past six weeks oil prices have fallen sharply, reaching close to $111 per barrel compared with a high of more than $147 on July 11, and the euro last week hit a six-month low against the greenback.

This also cuts some slack for the European Central Bank.

The ECB has been unable to cut interest rates and therefore spur economic activity because of its strict mandate to keep a lid on inflation - which in July hit a record 4.0 percent in July in the eurozone.

But economists sounded a cautious note.

"Both oil and the euro have only simply corrected their sharp advance of recent months, and both have made strong gains year on year, i.e. are still a strain on the economy," Matthias Rubisch at Commerzbank said.

Story continues below…

"Easing pressure from oil and the euro will probably not be sufficient in themselves to trigger a renewed upswing," he said.

Andreas Rees at UniCredit agreed: "(It) has become crystal-clear that markedly slower growth lies ahead, as the negative momentum from the global economy is increasingly carrying over into Germany.

"The euro-dollar exchange rate and the oil price might dampen the slowdown, but certainly cannot prevent it."

The German exporters' federation BGA was also anything but upbeat, forecasting on Tuesday a slowdown in exports growth this year to around five percent from 2007's 8.5 percent.

"I do not believe that the dollar is going to come back to levels where we can really celebrate," BGA head Anton Boerner said. "And for the oil price it is the same."

Facebook Twitter Google+ reddit

Today's headlines
Deutsche Bank reports surprise quarter billion profit
Photo: DPA

Troubled German lender Deutsche Bank reported Thursday a surprise €256-million profit in the third quarter, compared with a loss of more than six billion in the same period last year.

US 'warned Merkel' against Chinese takeover of tech firm
Aixtron HQ. Photo: DPA

The German government withdrew its approval for a Chinese firm to purchase Aixtron, which makes semiconductor equipment, after the US secret services raised security concerns, a German media report said Wednesday.

Long-vanished German car brand joins electric race
Photo: DPA

Cars bearing the stamp of once-defunct manufacturer Borgward will once again roll off an assembly line in north Germany from 2018, the firm said Wednesday.

Eurowings cabin crew union to strike all day Thursday
Photo: DPA.

UPDATE: A union representing cabin crews on Lufthansa's budget airline Eurowings has announced that strikes will last all day Thursday as ongoing contract negotiations continue to falter.

Hesse hopes to set example by building Iraqi orphanages
Refugee children in northern Iraq. Photo: DPA

The wealthy central German state of Hesse has set aside €1 million to build a school, family homes and an orphanage in northern Iraq, in an effort to help refugees there.

The Local List
10 German clichés that foreigners get very wrong
David Hasselhoff. Photo: DPA

Whether it be efficiency, humourlessness or a love of a certain Baywatch star, there are many cliches stuck in the heads of foreigners about Germany. But how true are they?

Fake Germanwings victim relative convicted in Cologne
A torn piece of metal at the crash site in 2015. Photo: DPA

A German court on Wednesday gave a woman a year's suspended jail sentence for posing as the cousin of a victim in last year's Germanwings plane crash and obtaining compensation offered by the airline.

Couple accused of torturing, murdering women go on trial
The so-called 'house of horrors' in Höxter where the couple allegedly tortured and killed women. Photo: DPA.

A couple accused of luring women to their village home with personal ads started trial on Wednesday over charges that they tortured and killed at least two of their victims.

After July attacks, govt drafts new video surveillance law
Photo: DPA

The Interior Ministry is drafting a law which will enable public spaces to be filmed for surveillance purposes as a reaction to deadly attacks in July, according to a newspaper report.

Merkel: murky internet giants distort perception of reality
Angela Merkel. Photo: DPA.

Chancellor Angela Merkel called on Tuesday for internet giants to make public their closely-guarded algorithms, claiming that they are not giving people diverse enough information.

10 ways German completely messes up your English
Sponsored Article
Last chance to vote absentee in the US elections
Germany's 10 most weird and wonderful landmarks
10 things you never knew about socialist East Germany
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
Eleven famous Germans with surnames that'll make your sides split
jobs available
Toytown Germany
Germany's English-speaking crowd