Advertisement

Is the threat from the East growing?

European companies intend to cut back on investment as the fallout with Russia starts to be felt.

"The German economic mini-miracle is on hold", says Olaf Storbeck on Breakingviews. After four quarters of growth, GDP slipped by 0.2% in the three months to the end of June.

The tepid global recovery is one problem. First-half exports rose by just 2.4%, compared to an expected 4%, says Wirtschaftswoche. Only the US and the UK are growing strongly.

Advertisement - Article continues below

In the eurozone, Germany's main export market, Italy and France are dragging down growth.

The stand-off with Russia is also a concern. Germany has closer economic ties to Russia than many of its major counterparts. So far, exports to Russia are down by 15% year-on-year. The latest sanctions will quicken that decline.

Deutsche Bank estimates that if exports to Russia fall by 20%-25% this year, it would wipe up to 0.7% off exports growth,which would knock 0.3% off overall GDP.

That doesn't sound too bad, says Wirtschaftwoche. But consider also the German firms that invest in Russia. This is harder to gauge numerically.

Nearly half of German businesses have links to Russia, and the political uncertainty, along with the squeeze on the Russian economy, could undermine investment in Germany.

Nearly a quarter of German firms intend to cut back on investment next year, according to a recent survey.

If enough companies, whether they have business in Russia or not, start to delay investment, the dip could feed on itself. And if sanctions escalate, consumer confidence will also be undermined. The economic threat from the East is getting stronger.

Advertisement
Advertisement

Recommended

Visit/investments/stockmarkets/601611/nasdaq-all-time-high-markets-and-the-real-economy
Stockmarkets

How can markets hit new record highs when the economy is in such a mess?

Despite the world being in the midst of a global pandemic, America's Nasdaq stock index just hit an all-time high. And it's not the only index on a bu…
3 Jul 2020
Visit/economy/global-economy/601610/quiz-of-the-week-27-june-3-july
Global Economy

Quiz of the week 27 June – 3 July

Test your recollection of the events of the last seven days with MoneyWeek's quiz of the week.
3 Jul 2020
Visit/economy/inflation/601584/the-end-of-the-bond-bull-market-and-the-return-of-inflation
Inflation

The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020
Visit/economy/global-economy/601579/how-pent-up-demand-could-drive-a-v-shaped-economic-recovery
Global Economy

How “pent-up demand” could drive a V-shaped economic recovery

“Pent-up demand” is usually a myth. But not this time. The Covid lockdown has created genuine pent-up demand, says Merryn Somerset Webb. That’s now be…
29 Jun 2020

Most Popular

Visit/economy/inflation/601584/the-end-of-the-bond-bull-market-and-the-return-of-inflation
Inflation

The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020
Visit/investments/commodities/gold/601587/bullish-gold-price-cup-and-handle-chart-pattern
Gold

This chart pattern could be extraordinarily bullish for gold

The mother of all patterns is developing in the gold charts, says Dominic Frisby. And if everything plays out well, gold could hit a price that invest…
1 Jul 2020
Visit/investments/property/601606/house-prices-crash-uk-property-prices-falling-where-next
Property

House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020