German economy at risk of downturn as growth slows
German economy at risk of downturn as growth slows
Markit Economics said a Purchasing Managers Index for manufacturing and services fell to 51.4 this month from 51.7 in November. Economists forecast an increase to 52.3. A factory gauge rose to 51.2 from 49.5, crossing the 50 mark that divides expansion from contraction, while a measure for services fell to 51.4 from 52.1.
While German data showed this month that the economy, Europe's largest, had a modest start into the last quarter of the year, the Bundesbank has pointed to signs that growth could strengthen. As the rest of the euro area struggles to expand and inflation hovers close to zero, the European Central Bank has held out the prospect of expanding its range of asset-purchases next year.
The German "data are consistent with only marginal gross- domestic-product growth in the fourth quarter at best," said Oliver Kolodseike, an economist at London-based Markit. "The possibility of a renewed downturn at the start of next year is clearly becoming more and more likely, especially if the survey data continue to disappoint."
The German economy narrowly escaped recession in the third quarter, recording growth of 0.1 percent after shrinking by the same extent in the April-June period. Economists predict growth of 0.2 percent in the final three months of the year.
Companies signaled a second consecutive monthly decline in new business in December, citing a lack of investment and increased competition, according to Tuesday's report.
In France, the manufacturing PMI unexpectedly declined to 47.9 from 48.4. Economists predicted an increase to 48.6. A gauge for services and manufacturing activity in the 18-nation euro area is seen increasing to 51.5 this month from 51.1, according to a separate survey.
A second round of targeted long-term loans to banks by the ECB last week came in at the low end of analysts' forecasts, in a sign that financial institutions see few ways of using cheap central-bank money in the weak economy. ECB President Mario Draghi said on Dec. 4 that "all assets but gold" are under consideration for purchase as the central bank seeks to step up aid to the economy.
The Bundesbank said Monday that some support for German consumers will come from lower oil prices, a development Weidmann has likened to a "mini stimulus package."
Meanwhile, investor sentiment in Germany rose sharply again in December driven by a weak euro and plunging oil prices, a survey found on Tuesday, underlining a sunnier outlook for Europe's top economy.
The widely watched investor confidence index calculated by the ZEW economic institute jumped by 23.4 points in December, after increasing for the first time this year in November, ZEW said in a statement.
It said there was abundant evidence that faith in Germany among financial market experts was being restored.
"This renewed confidence remains linked to the auspicious economic conditions including the weak euro and the low price of oil," ZEW President Clemens Fuest said in a statement.
"This positive trend could be seen in the recent data for German exports. But it should be noted that the current economic optimism is fostered by factors that can change quickly."
For its survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.
The sub-index measuring financial market players' view of the current economic situation in Germany also rose, by 6.7 points.
In November the ZEW headline indicator had bounced back for the first time in 2014, adding to signs that the German economy is stabilizing and providing a boost for the euro zone as a whole.
After hitting a 22-month low in October, the index jumped to 11.5 points from minus 3.6 points the previous month.
Last week Germany reported that its trade surplus had grown slightly in October, with imports showing a sharper decline than exports due in part to the weaker euro.
A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable.
As a result, analysts were cautious about reading too much into the December data.
"December's sharp rise in German ZEW investor sentiment is an encouraging sign that confidence has so far not been hit by renewed problems in Greece, but the improvement is at odds with the weakness of the more reliable PMI" or purchasing managers' index, said Jennifer McKeown, senior European economist at Capital Economics in London.
The German PMI had declined in December, McKeown noted, and said that she maintained her view "that the Germany recovery will be steady rather than spectacular and that additional policy support is still required in Germany and the euro zone as a whole" to boost growth.
Christian Schulz of Berenberg Bank said "the evidence that Germany's economy is about to reaccelerate after a rough patch is mounting" but warned there may be "new wobbles ahead".
"The market rout triggered by political risks in Greece as well as the economic fallout of sanctions and the sharply lower oil price for Russia are bound to leave traces in German investor confidence in the coming months, if sustained," he said.
Carsten Brzeski, chief economist at ING-Diba bank in Frankfurt, said the ZEW index, with the headline number showing its strongest monthly increase since January 2013, and the weaker PMI sent "mixed signals".
"The economy should benefit from a very special stimulus package: The weaker euro and the sharp drop in energy prices," he said.
"To some extent, however, this very special stimulus package could also be the poisoned apple as it could delay necessary structural reforms."
Merkel seeks united front with China amid Trump trade fears
- Merkel seeks common ground to ward off trade war
- Plans complicated by US policy moves
Chancellor Angela Merkel visits China on Thursday, seeking to close ranks with the world’s biggest exporting nation as US President Donald Trump shakes up explosive issues from trade to Iran’s nuclear deal.
Finding a common strategy to ward off a trade war and keep markets open will be Merkel’s priority when she meets with President Xi Jinping, as Washington brandishes the threat of imposing punitive tariffs on aluminum and steel imports.
“Both countries are in agreement that open markets and rules-based world trade are necessary. That’s the main focus of this trip,” Merkel’s spokeswoman Martina Fietz said in Berlin on Friday.
But closing ranks with Beijing against Washington risks being complicated by Saturday’s deal between China and the US to hold off tit-for-tat trade measures.
China’s economic health can only benefit Germany as the Asian giant is a big buyer of Made in Germany. But a deal between the US and China effectively leaves Berlin as the main target of Trump’s campaign against foreign imports that he claims harm US national security.
The US leader had already singled Germany out for criticism, saying it had “taken advantage” of the US by spending less than Washington on NATO.
Underlining what is at stake, French Economy Minister Bruno Le Maire warned the US-China deal may come “at the expense of Europe if Europe is not capable of showing a firm hand.”
Nevertheless, Merkel can look to her carefully nurtured relationship with China over her 12 years as chancellor.
No Western leader has visited Beijing as often as Merkel, who will be undertaking her eleventh trip to the country.
In China, she is viewed not only as the main point of contact for Europe, but, crucially, also as a reliable interlocutor — an antithesis of the mercurial Trump.
Devoting her weekly podcast to her visit, Merkel stressed that Beijing and Berlin “are both committed to the rules of the WTO” (World Trade Organization) and want to “strengthen multilateralism.”
But she also underlined that she will press home Germany’s longstanding quest for reciprocity in market access as well as the respect of intellectual property.
Ahead of her visit, Beijing fired off a rare salvo of criticism.
China’s envoy to Germany, Shi Mingde, pointed to a “protectionist trend in Germany,” as he complained about toughened rules protecting German companies from foreign takeovers.
Only 0.3 percent of foreign investors in Germany stem from China while German firms have put in €80 billion in the Asian giant over the last three decades, he told Stuttgarter Nachrichten.
“Economic exchange cannot work as a one-way street,” he warned.
Meanwhile, looming over the battle on the trade front is another equally thorny issue — the historic Iran nuclear deal, which risks falling apart after Trump pulled the US out.
Tehran has demanded that Europe keeps the deal going by continuing economic cooperation, but the US has warned European firms of sanctions if they fail to pull out of Iran.
Merkel “hopes that China can help save the atomic deal that the US has unilaterally ditched,” said Die Welt daily.
“Because only the giant emerging economy can buy enough raw materials from Iran to give the Mullah regime an incentive to at least officially continue to not build a nuclear weapon.”