Wednesday, 3 August 2011

The party seems to be over for the German economy

                     The party could soon be over also for Mercedes in China

The party is probably over for the German economy, which has enjoyed a strong boom during the last few years. Weakening activity in China is perhaps the main reason for the worsening forecasts and indicators:

Germany staged an impressive recovery from the 2008/2009 global economic crisis, but there are increasing signs that the boom is now coming to an end.

After almost two years of strong growth, its economic outlook is starting to deteriorate, due to a slowdown in major emerging markets including China and fears of a possible United States recession caused by $2.4 trillion in spending cuts linked to the debt ceiling deal.

Various indicators released in recent weeks point to a deceleration of Europe's largest economy.
The Ifo business climate index for July fell sharply to its lowest level in nine months, and analysts say it is likely to keep dropping. The ZEW investor sentiment index showed the weakest level since January 2009.
The German recovery was led by surging exports to high-growth emerging economies, especially China, which has had a nearly unsatiable demand for the products in which Germany specializes -- high-performance cars and machinery.

Bad News for the Rest of Europe
The slowdown in the Chinese economy is beginning to bite, however. Faltering growth in Germany will have knock-on effects on the rest of the euro zone, which has relied on its core economies, Germany and France, for growth while the high-debt nations such as Greece, Portugal and Spain are weighed down by austerity programs aimed at overcoming their debt problems.

Read the entire Der Spiegel article here


As we pointed out a few days ago:

Add the euro crisis and the financial turmoil in the US and you have the ingredients of a "perfect storm".

What this means for the European Union is that Germany will be less and lesss willing to play its traditonal paymaster role. Chancellor Angela Merkel is also likely to face increasing criticism against her weak leadership from within her own party, the conservative CDU/CSU. There is still time until the next elections in September/October 2013, but conservative core voters are worried about the fact that greens together with the social democrats have a clear lead in all recent opinion polls.

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