MAN SE, Europe’s third-biggest truck maker, is reducing manufacturing at plants in... Read More
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to minus 3.6 in October from 6.9 in September. That’s the 10th month of declines and the first negative reading since November 2012. Economists had forecast a drop to zero, according to the median of 35 estimates in a Bloomberg News survey.
ZEW President Clemens Fuest said a technical recession in Europe’s largest economy, or two quarters of contraction, is possible as the recovery in
the 18-nation euro area falters and political tension in Ukraine and the Middle East threatens trade flows. German gross domestic product shrank in the second quarter and factory orders, industrial output and exports plunged in August by the most since January 2009.
“Geopolitical tensions and the weak economic development in some parts of the euro zone, which is falling short of previous expectations, are a source of persistent uncertainty,” Fuest said. “These factors are tarnishing growth expectations in Germany.”
A measure of the current situation in Germany dropped to 3.2 in October from 25.4 the previous month, today’s report showed. A gauge of expectations for the euro area shrank to 4.1 from 14.2.
Disappointing Data
The euro fell and was at $1.2655, down 0.8 percent, at 11:48 a.m. Frankfurt time. Germany’s benchmark DAX Index (DAX) of stocks slid 0.9 percent, taking its decline to 13 percent since reaching a record in early July.A raft of disappointing data including a larger-than-anticipated decline in Ifo business confidence in September has sparked concern about the health of Germany’s economy. The International Monetary Fund cut its economic-growth forecasts for the country last week, and French Finance Minister Michel Sapin said the signs of weakness show “no country is immune.”
Wolfgang Schaeuble, his German counterpart, blamed at least part of the slowdown on global crises such as the Ukraine conflict and the effect of sanctions against Russia.
“We have some weakening,” he said in Washington last week, where he attended the annual meeting of the IMF and the World Bank. “We don’t have a recession in Germany.”
Manufacturing Cuts
The economy probably posted zero growth in the third quarter, according to an outlook by four research institutes advising Chancellor Angela Merkel’s government. The group cut its 2014 growth forecast to 1.3 percent from 1.9 percent in April and trimmed next year’s prediction to 1.2 percent from 2 percent.MAN SE, Europe’s third-biggest truck maker, is reducing manufacturing at plants in Germany and Austria in response to what it said could be a drop in European industrywide deliveries of as much as 15 percent in 2014.
Fuest said the ECB’s options for adding stimulus to the currency bloc are coming to an end and German politicians should consider investment programs.
“I don’t think it were a disaster if the government would say we invest more in infrastructure now, even if that takes it slightly below a balanced budget,” he said. “There’s room for more investment and now’s a good time to do it.”
ECB President Mario Draghi is trying to combat anemic growth and inflation in the 18-nation euro area with a combination of record-low interest rates, long-term loans and asset purchases that may expand the institution’s balance sheet by as much as 1 trillion euros.
While he’s so far stopped short of committing to large-scale purchases of sovereign debt, more than half the economists in Bloomberg’s monthly survey predict he’ll eventually announce a quantitative-easing program similar to those carried out by the U.S. Federal Reserve and the Bank of England.
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