Bundesbank warns of danger of recession

Germany’s economy may be skidding towards recession, the Bundesbank has warned, after it cut its 2013 growth forecast from 1.6 per cent to almost 0.4 per cent.

Europe’s largest economy will grow just 0.7 per cent this year, the central bank forecast, with contraction in the fourth quarter and likely stagnation in the first quarter of next year.

The bank attributed the slowdown to a growing chill in the country’s important export sector.

Rate cut

The move came as it was confirmed that the European Central Bank had had a “very serious” debate about cutting interest rates this week.

Governing council member Jozef Makuck said the debate had been “very serious” and that a cut was possible next year if the euro zone economy does not pick up.

“Economic prospects have clouded in Germany” because of “a severe adjustment recession in parts of the euro region and the slowdown of the global economy,” said the Bundesbank in a statement.

With the euro zone in its second recession since 2009, the German economy is slowly shedding its immunity to its neighbours’ economic woes.

“With the global economic cooling in the second half of the year, [Germany’s] immunity is quickly fading,” said ING bank economist Carsten Brzeski. “The thinning out of order books through the year is finally feeding through to the real economy.”

The federal economics ministry said yesterday that Germany’s industrial sector shrank in October at the fastest rate since the start of the economic crisis and has hit its lowest level since November 2010. However, new manufacturing orders have stabilised, as has business sentiment.

Election campaign

The Bundesbank insisted yesterday that Germany’s economic weakness would not last long, with 1.9 per cent growth forecast in 2014. An extended economic slowdown could complicate Chancellor Angela Merkel’s re-election campaign next autumn.

Austria’s central bank cut its 2013 growth forecast for the country’s export-dependent economy to 0.5 per cent from the 1.7 per cent it had expected in June, due to the global downturn, weak investment and sluggish consumer spending.

The downward revisions come a day after the ECB lowered its forecasts for next year.