Germany: is the gloom overdone?

Industrial orders in Germany have seen their sharpest drop in more than two years, defying hopes of a rebound in Europe’s largest economy. So what’s gone wrong?

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There is a glimmer of hope for Germany's manufacturers
(Image credit: 2017 Getty Images)

Germany is "teetering on the brink of recession", says Tommy Stubbington inThe Sunday Times.Industrial orders have seen their sharpest drop in more than two years, defying hopes of a rebound in Europe's largest economy.So what's gone wrong? Germany is very dependent on exports, which make up 50% of its GDP. Its economy is powered by the "Mittelstand", small and medium-sized companies that are often family-run and highly specialised. They supply much of the machinery for the world's factories. The success of its exports is also Germany's Achilles heel, as it leaves it vulnerable to slower global growth, especially in China, the main destination of its machinery. The world economy is expected togrow by around 3% this year, the lowest rate since the financial crisis.

Germany's slowdown has affected the eurozone as a whole. Germany accounts for 29% of eurozone economic activity, "so weakness in Germany drags down the average even if nothing changes anywhere else", note Andrew Walker and Daniele Palumbo on the BBC.

But the clouds may soon lift. Germany's unemployment rate is still one of the lowest in the world at 3.1%, which should underpin consumption. In addition, "there is a glimmer of hope for Germany's beleaguered manufacturers", says Stubbington.China's manufacturing sector has returned to growth following stimulus by Beijing comprising infrastructure investments, tax cuts and more bank lending.It's also interesting to note that the valuation gap between US and German stocks is at a 50-year high, according to one newsletter, while German stocks are highly geared to global growth. With the outlook improving, they look due a bounce.

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Marina Gerner

Marina Gerner is an award-winning journalist and columnist who has written for the Financial Times, the Times Literary Supplement, the Economist, The Guardian and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany.

Marina is also an adjunct professor at the NYU Stern School of Business at their London campus, and has a PhD from the London School of Economics.

Her first book, The Vagina Business, deals with the potential of “femtech” to transform women’s lives, and will be published by Icon Books in September 2024.

Marina is trilingual and lives in London.

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