London-based economists at the investment banking company Credit Suisse have concluded that Germany is the new “sick man” of Europe, as global trade has slowed down in recent months.
“Once the major outperformer of the euro-area economy, it is now the major underperformer, its huge trade imbalance a huge burden”, Fox Business cited the economists as saying, after they reviewed the crucial economic indicators.
The Western European country’s economic annual growth amounted to 0.4 percent in recent time, which is the weakest figure in more than six years, while its 0.1 percent quarterly decrease rendered it the only major European economy to shrink.
The World Trade Organisation ruled on Wednesday that European manufacturer Airbus had received illegal subsidies for the past 15 years, heralding a reciprocal move by the US to hit European goods with 25 percent tariffs. The increased duties could render German goods like wine and coffee more costly, thereby further hurting the worsening economy, Fox Business wrote.
Before the WTO’s ruling, the forecasts were not that bright either, as economists at the investment bank Nomura reported in their September note to clients a contraction in Germany’s GDP, arguing that surveys “are pointing to the risk of further declines”.
However, the slump in Germany will hardly infect other European countries, the Credit Suisse economists assumed, citing Germany’s “huge current account surplus”, which is expected to reach $276 billion this year, arguably the largest in the world due to a combination of factors – booming exports and lukewarm demand at home that minimises imports.
According to Credit Suisse, there are two things that can fix Germany’s troubles - an end to the trade war between the US and China, which cannot help affecting other market players, as well as German fiscal incentives and support. While a trade war resolution is beyond German authorities’ power, fiscal stimuli seem more than achievable, as the country boasts the “fiscal firepower” to back its economy.
Even White House economic aide Larry Kudlow once voiced a golden tip for the ailing economy:
Chancellor Angela Merkel "should be cutting tax rates, individual and corporate tax rates, and deregulating to get their economy moving again”, White House economic advisor Larry Kudlow told Fox Business’ “Varney & Co”.
“Even France just announced an income-tax cut on top of a corporate tax cut”, Kudlow adduced an example.
Germany’s economy is suffering its worst downturn in almost seven years, with factory activity going down at the fastest pace in a decade in September and growth in services waning, according to a report by IHS Markit published last month.
The euro went down 0.3%, dropping below $1.10. Separately, European stocks declined, with the Stoxx 600 slipping more than 1% as of the end of September. Chancellor Angela Merkel promised to stick to a policy of zero deficit spending at the time, despite her administration announcing a 54-billion-euro package meant to help put its climate targets back on track.