German export slump amplifies recession alarm as trade conflicts bite

An employee of MAN Turbo company works on compressors and turbines at the factory in Oberhausen, western Germany. (File/AP)
Updated 10 October 2019

German export slump amplifies recession alarm as trade conflicts bite

  • Seasonally adjusted exports fell 1.8% on the month while imports rose 0.5%

BERLIN: German exports fell by more than expected in August, data showed on Thursday, reinforcing expectations that a manufacturing slump is pushing Europe’s largest economy into recession.
Reliant on exports, German factories are suffering from a slowing world economy and uncertainty linked to the trade dispute between the United States and China, as well as Britain’s planned but delayed exit from the European Union.
The Federal Statistics Office said seasonally adjusted exports fell 1.8% on the month while imports rose 0.5%. The trade surplus narrowed to 18.1 billion euros ($19.9 billion) after an upwardly revised 20.5 billion euros in the prior month.
A Reuters poll of economists had pointed to a 1.0% drop in exports and a 0.2% fall in imports. The trade surplus was expected to come in at 19.1 billion euros.
The economy shrank by 0.1% in the second quarter, and recent data has pointed to continued weakness in manufacturing in the third quarter. Most economists define a recession as two straight quarters of contraction in gross domestic product (GDP).
“We will likely have a contraction in GDP in the third quarter, and thus a recession,” said Uwe Burkert, economist at LBBW, a bank.
August’s drop in exports was the steepest since April. A regional breakdown of annual trade figures showed the biggest slump in exports — a 4.8% drop — was to so-called ‘third countries’ beyond the European Union, which include China.
Data published on Monday showed German industrial orders fell more than expected in August on weaker domestic demand.
Prolonged weakness in Germany, a bellwether for the economic health of the euro zone, would be a headache for the European Central Bank, which in September pledged indefinite stimulus to revive the bloc’s economy.
With the ECB already deploying hefty monetary stimulus, economists and German business lobby groups have urged Chancellor Angela Merkel to ditch her policy of no new debt and borrow to fund a stimulus package for the economy.
Last Wednesday, leading economic institutes slashed their growth forecasts for the economy for this year and next, blaming weaker global demand for manufacturing goods and increased business uncertainty linked to trade disputes.
The institutes also called on the coalition government to take on more debt if the growth outlook deteriorates. It has so far refused to do so.
Merkel’s government has managed to raise public spending without incurring new debt since 2014, thanks to an unusually long growth cycle, record-high employment, buoyant tax revenues and the European Central Bank’s bond-buying plan.
But with the economy slowing and tax revenues waning, the fiscal room to counter a recession is getting smaller. At the same time, Germany’s borrowing costs have turned into premiums, which means investors are actually willing to pay the state a bonus for being able to lend it billions of euros.


Cirque du Soleil walks a tightrope through pandemic

Updated 06 June 2020

Cirque du Soleil walks a tightrope through pandemic

  • Suitors wage backstage battle to rescue debt-stricken Canadian circus icon
  • Among the potential bidders is former fire eater Guy Laliberte, who fouded the acrobatic troupe in 1984

MONTREAL: Its shows canceled due to the COVID-19 pandemic, an already heavily indebted Cirque du Soleil’s fight for survival has invited an intense backstage battle to try to save the Canadian cultural icon.

High on a list of potential suitors is former fire eater Guy Laliberte, who founded the acrobatic troupe in 1984 but later sold it.

“Its revival will have to be done at the right price. And not at all costs,” said the 60-year-old, determined not to see his creation sold to private interests.

The billionaire clown said after “careful consideration,” he decided “with a great team” to pursue a bid, but offered no details.

Under his leadership, the Cirque had set up big tops in more than 300 cities around the world, delighting audiences with contemporary circus acts set to music but without the usual trappings of lions, elephants and bears.

Then the pandemic hit, forcing the company in March to cancel 44 shows worldwide, from Las Vegas to Tel Aviv, Moscow to Melbourne, and lay off 4,679 acrobats and technicians, or 95 percent of its workforce.

Hurtling toward bankruptcy, the global entertainment giant and pride of Canada commissioned a bank in early May to examine its options, including a possible sale.

Meanwhile, shareholders ponied up $50 million in bridge financing for its “short-term liquidity needs.”

Laliberte, the first clown to rocket to the International Space Station in 2009, ceded control of the Cirque for $1 billion in 2015.

It has since fallen into the hands of American investment firm TPG Capital (55 percent stake) and China’s Fosun (25 percent), which also owns Club Med and Thomas Cook travel. The Caisse de depot et placement du Quebec (CDPQ) retains the last 20 percent.

The institutional investor, which manages public pension plans and insurance programs in Quebec, bought Laliberte’s last remaining 10 percent stake in the business in February, just before the pandemic.

Since 2015, the Cirque has embarked on costly acquisitions and renovations of permanent performance halls, while its creative spirit waned, according to critics in the Quebec press.

Meanwhile, it piled on more than $1 billion in debt.

Fearing that the Cirque would be “sold to foreign interests,” the Quebec government recently offered it a conditional loan of $200 million to help relaunch its shows as restrictions on large gatherings start to be eased worldwide.

But the agreement in principle is conditional on the Cirque headquarters remaining in Montreal and the province being allowed to buy US and Chinese stakes in the company at an unspecified time in the future, “at market value” and with “probably a local partner,” said Quebec Minister of the Economy Pierre Fitzgibbon.

“The state does not want to operate the circus, but the circus is too important to Quebec (to leave it to foreigners),” he said.

In addition to Laliberte, other prospective buyers include Quebecor, the telecoms and media giant of tycoon Pierre Karl Peladeau, whose opening lowball bid was outright rejected.

“It is essentially the value and reputation of the brand” that has piqued interest in the company, says Michel Magnan, corporate governance chair at Concordia University in Montreal.

But “as long as there are restrictions on gatherings of people, the future is not very rosy” for the Cirque, he said.

Several challenges await, according to Magnan.

“There were a lot of people working in all of these shows. Where are they now? What are they doing? How are they doing? In what shape are they, what state of mind?” he said.

“The more time passes, the more this expertise risks evaporating.”

Small consolation: The Cirque resumed its performances on Wednesday in Hangzhou, China, five months after a coronavirus outbreak in the city.