Contracting Germany Set On Recession Course

This morning saw the publication of dire statistics for the German economy, which contracted this quarter with many voices now predicting that the struggling country is likely on course for recession. Now it’s not just the German Chancellor that’s looking shaky…

Unlike the UK’s contraction this quarter, the German one is based on much less sound fundamentals.  Overall year on year, the German economy’s growth rate is just 0.4% compared to the UK’s 1.2%. The Chief Business Editor of respected German broadsheet Welt has said that Germany has become “the sick man of Europe”.

GDP has now fallen in two of the last four quarters in both Germany and Italy. The last thing European countries want right now is a disorderly No Deal exit for Britain from the EU…

German Manufacturing ‘Free Falls’ to Worst Level in 7 Years

Germany’s manufacturing woes just get worse and worse, German executives are describing their sector as in “free fall” while one German analyst has said the economy is “in a grey area between a marked growth slowdown and a recession”. The latest German manufacturing PMI index has slumped again to 43.1, significantly lower than expectations and its worst level since 2012. It has been in contraction territory all year…

Luckily for Germany, there’s a large and dynamic world economy just on its doorstep which it will soon have the opportunity to sign a comprehensive free trade deal with. That’ll be a nice confidence boost for the struggling German economy…

Eurozone Industrial Production Slumps Second Month in a Row

Three smug eurocrats have been gloating about Brexit and the Tory leadership race in a Sky News segment which Sky have inexplicably been playing on repeat all day. Not exactly news.

They won’t be as smug when they see the latest Eurozone industrial figures. Industrial production fell 0.5% in April on top of a 0.4% drop in March. Dragging every other country down was Germany which saw its industrial production plummet by 2.3% – almost five times faster than the Eurozone as a whole. Brussels’ Brexit bluster is going to start looking pretty hollow if the Eurozone’s economic woes keep getting worse like this…

Merkel Cancels Resignation, Decides Successor Not Up to Job

If the Tories thought they were having trouble getting rid of Theresa May, they should spare a thought for the German CDU where Angela Merkel has just announced that she won’t be resigning as German Chancellor after all. Heiliger Strohsack!

Merkel has reportedly decided that her chosen successor Annegret Kramp-Karrenbauer, abbreviated to slightly dubious acronym ‘AKK’, is not up to the job after watching her popularity slide since she took over leadership of the CDU. AKK led the CDU to its worst ever performance in the EU elections, which people actually care about in Germany. Merkel now wants to hang on at least until 2021. As long as Theresa May doesn’t get any ideas…

German Growth Forecast Slashed by Over 75%

The German Government has released an updated growth forecast for 2019, and it’s pretty damning. Forecast growth for 2019 has been slashed to 0.5%, less than a quarter of the 2.1% predicted a year ago and a level not seen since the height of the Eurozone crisis. It’s also less than half of the UK’s expected growth this year. While Remainer commentators drone on about the UK, the EU’s powerhouse economy is barely keeping its head above water…

German Economists: No Deal Will Hit Ireland Three Times Harder than UK

Germany’s prestigious IFO Institut has crunched the numbers on the economic impact of no deal on 44 countries and predicted that Ireland would be hit three times harder than the UK by a no-deal Brexit, taking a massive 8.16% hit to their economy. Guido hears that Ireland has been the main EU27 country holding out against any reference to the UK’s basic Vienna Convention treaty rights over the backstop. They may want to seriously reconsider their position after seeing these figures…

However, the Institut also modelled the effect of a “hard but smart” Brexit, where the UK left with no deal but also put in place large unilateral tariff cuts, more or less exactly along the lines of what what the Government is planning. In this scenario, the UK actually faces a smaller impact than the EU – they forecast a -0.5% impact on the UK compared to -0.4% for France and -0.48% for Germany, and -0.6% for the EU as a whole. Ireland is still by far the biggest loser, taking a -5.39% hit, ten times the size of the UK…

In their sector-by-sector breakdown, they find that the UK would actually receive a major boost to certain sectors in a “hard but smart” Brexit, with electrical equipment up by 3.7%, machine manufacturing by 8.4% and pharmaceuticals by a whole 8.7%. EU sectors lose out across the board…

Gabriel Felbermayr, the author of the report and also President of the Kiel Institute for the World Economy, said that the EU needed to “urgently ponder whether the danger of a hard Brexit isn’t bigger than initially assumed” and called on the EU to offer to remove the backstop “as a quick fix at least”. Brussels and Dublin can only keep sticking their fingers in their ears for so long…

H/t Pieter Cleppe

Eurozone Suffers Worst Manufacturing Slump Since 2013

The Eurozone’s economic slide continues with the latest manufacturing index figures showing the steepest contraction in manufacturing since June 2013. February’s PMI figures showed a fall to 49.3 (anything below 50 indicates contraction), the lowest level since June 2013, with new orders at their lowest since April 2013 and export orders at their lowest level in over six years. Germany’s performance was particularly poor on 47.6 – the wurst in 74 months…

The bottom line is that the EU increasingly cannot afford to have no deal. Eurocrats are panicking about legal chaos if the UK’s membership is extended beyond the European Parliament elections, the UK’s seats have already been allocated to other countries so the EU isn’t just braced for lawsuits from the UK, it may also have to face several from the likes of the German Vegetarians Party. The only thing still allowing the EU to stick to its intransigent position is the fact that UK Parliament is doing all their dirty work for them…

German Business Confidence Falls to Four-Year Low

Germany’s stalling economy continues to deteriorate, with business confidence falling to its lowest level in four years. The IFO Institute’s business climate index February figures came in below expectations at 98.5 – the poorest figures since January 2015 when Germany was last flirting with recession. Six-month business projections also came in lower than expected, with IFO economists predicting that Germany’s weak second half of 2018 is set to continue…

This is no cause for gloating but it provides the broader context which is so often missing in the media’s Brexit-obsessed coverage of the UK’s economic performance – The UK is predicted to continue steady growth even as Europe stagnates. Increasingly it’s the EU which needs a deal more than ever…

EU Predicts UK Will Grow Faster Than Germany in 2019

Mark Carney’s latest gloomy predictions for the British economy have elicited all the usual told-you-so responses from Remainers with very short memories. The Bank of England has predicted 1.2% growth for 2019. Before the referendum Remainers said we would be deep in recession now…

There was in fact another set of 2019 forecasts also released this morning – by the European Commission. The EU actually upgraded Britain’s 2019 forecast to 1.3% – the same as France, Belgium, Sweden and the Eurozone as a whole. Struggling Germany is lagging behind on 1.1% while Italy is down on 0.2%. Despite… Brexit?

Bank of America Merrill Lynch Tracking Recession in Germany

Following Guido’s article about fears of a German economic recession last week, Bank of America Merrill Lynch is now “tracking a recession” in Germany. Recognising the gravity of the situation, they explicitly say: “Are we overreacting? We don’t think so.”

Their German GDP tracker has deteriorated to -0.1% quarter-on-quarter, mean that Germany is heading towards the two consecutive quarters of negative growth defined as a technical recession. BAML point to extremely weak factory orders as well as the gilet jaunes disruptions in France for the continued downturn. Britain on the other hand is the fastest growing European country in the G7…

H/t Ed Conway

Recession Fears as German Output Drops 4.7%

German industrial production unexpectedly slumped in November, further evidence that a nine-year recovery in Europe’s largest economy is foundering. Production in Germany’s key industrial sector, adjusted for inflation and seasonal swings, fell 1.9% in November from the previous month. Economic experts’ consensus expectation was for a small rise…

The decline in November production was broad-based and led by consumer goods and energy. Output was down 4.7% year-on-year, the most since the financial crisis. Carsten Brzeski, chief economist at ING Germany says “At face value, today’s industrial production data has clearly increased the risk of a technical recession in Germany in the second half of 2018”. In the circumstances German industry will be even less keen on the EU putting up export barriers to free trade with Britain…

‘AKK’ Chosen as Merkel’s Successor

The CDU has elected Merkel’s favoured candidate, Annegret Kramp-Karrenbauer, to be its new leader. This puts ‘AKK’, widely seen as the continuity candidate, in pole position to succeed Merkel when she finally steps down as Chancellor in 2021, if not before. Will the Brexit negotiations still be going on then?

German Companies Back Brexit Britain

Officials in Germany’s economic powerhouse state of Hesse – home to significant industry and the major financial centre of Frankfurt – say Brexit has had no negative effect on business. Prof. Mathias Mueller, President of the Frankfurt Chamber of Commerce and Industry, explained:

“Exports to the UK totalled 4.1 billion euros in 2017, which was 6.5 percent of Hessen’s exports… The sectors most affected include automobiles and automotive parts, since many Vauxhall automobiles sold in the UK are essentially “Made in Hessen”. Traditionally important export goods from Hessen are also chemical and pharmaceutical products as well as electro-technical products.”

He continued:
“Many local companies have also invested in the UK. According to statistics of the German Bundesbank, Hessen’s direct investment in the UK amounts to nearly 21 billion euros. Hessian companies employ 39,000 people in the UK. Conversely, British companies in Hessen employ as many as 60,000… 

“Business is running as usual, a ”Brexit shock” has not occurred and most companies are so experienced in international trade that they can deal with problems such as customs clearance, different national licensing processes, site-specific legal norms and the like. In general, the issues confronting companies with Brexit are nothing new.” 

Meanwhile, a nationwide poll by the German Chambers of Commerce and Industry found that even if the framework conditions for future business are not yet clear, companies that are invested in the UK will stand by their commitments. More than 91% of companies replied to the question of possible relocations away from the UK with “no”. Look forward to seeing this reported in the FT…

Merkel: “Absolutely No Doubt” There Will Be a Deal

These new lines from Merkel this morning that tell a rather different story to the narrative playing out in parts of the British media:

“From my point of view, there are absolutely no signs that we can’t succeed. If we are all clear in our minds, I have absolutely no doubt that we can reach a good result. What I find it hard to understand, when we need a result by March 2019, is why people are already talking in October 2017 about what might happen at the end of the process. I believe, in contrast to the way things are portrayed in the British press, that things are progressing step by step. We’re in a process, and if it goes on for two or three weeks longer, or even longer, that doesn’t stop us from working hard to reach the second phase. I very clearly want an agreement, not any kind of unpredictable solution, and we’re working very hard on that.”

Add that to Berlin’s talk of a free trade agreement and Sweden preparing to move onto the next stage and there is plenty of tangible positive news this week. Merkel is even admitting the EU has to compromise…

Germany Seeks “Comprehensive Free Trade Accord” With UK

Bloomberg has the scoop: Germany’s foreign ministry is working on a “balanced, ambitious and far-reaching” free trade deal with Brexit Britain – apparently they want a deal on security, agriculture, trade, energy, air travel and research. Sounds sensible…

Top Merkel Ally Slaps Down Juncker Over Brexit Bill

A top ally of Angela Merkel has strongly criticised Jean-Claude Juncker for threatening Britain with a “very hefty” Brexit bill on day one of the negotiation. CDU Home Affairs spokesman Stephan Meyer told the Today programme:

“I am not very happy, to be frank, with the statement of Jean-Claude Juncker. The negotiations haven’t started yet and I think it’s not very clever and it’s not very fair also to mention such sums and such amounts… It’s not very smart now to start these negotiations with such amounts which are mentioned.”

This backs up the report in yesterday’s Times which said Merkel was siding with Britain over Juncker and Michel Barnier over an immediate Brexit bill. It is possible that Britain will end up paying a smaller charge for the future aspects of the relationship we want to keep, for example the Erasmus programme for students. What Theresa May cannot accept is a €60 billion bill on day one of the negotiations. The government’s plan has always been to appeal to German self-interest rather than deal with, as ministers call them in private, the “ayatollahs of the European Commission”…

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Peter Mandelson tells Emma Barnett…

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