Germany: "Bad phase" for Europe's largest economy

(Patria) – The German economy stagnated in the last quarter of 2019, mainly due to weaker private consumption and increased government spending.

If this trend continues, the risk of recession will continue to grow. This is contributed to by a decrease in overall exports, including those related to the automotive industry, which is currently in an extremely expensive transition phase from conventional to electric vehicles.

Data released on Friday will only amplify existing fears of recession, while Chancellor Angela Merkel's party is preoccupied with the search for a new leader.

The German Minister of Economy confirmed that the country's economy is going through an unstable period, but that an improvement in "business sentiment" suggests that the industrial sector may stabilize somewhat in the coming months. He also mentioned external risks such as the coronavirus with short-term and long-term consequences for the Chinese economy, as well as the economy of its trading partners.

Investments in the construction sector increased in the last quarter, while spending on machinery and equipment decreased compared to the period of July - September.

Angela Merkel's government has not approved requests for fiscal stimulus that would alleviate the crisis until the economy returns to a growth phase. Finance Minister Olaf Scholz from the coalition partner SPD adheres to a policy that rejects even the thought of new borrowing.

At the same time, Angela Merkel's CDU party has fallen into crisis after the left wing of the party in Thuringia voted for a governor supported by the far-right AfD. This confirmed doubts about the authority and leadership of Annegret Kramp-Karrenbauer, the leader of the CDU, who immediately announced her departure from the top position, as well as that she would not run for chancellor.

Reuters speculates that both Angela Merkel's CDU and their coalition partners, the Social Democrats (SPD), will suffer defeat in the next elections.

Pessimism is further growing due to the risks associated with the United Kingdom's exit from the EU, as well as the threat from US President Trump to impose higher tariffs on car imports from Europe.