Germany is walking a tight line as an industrial recession threatens to drag down the broader economy, one of the leading economic experts advising Chancellor Angela Merkel‘s government warned.
“Manufacturing has been hit hard by the decline in world trade — industry is in recession,” said Volker Wieland, a member of the council of economic advisers, which lowered its forecasts for the nation on Wednesday. “Jobs may be lost and the decline in industry may draw down other sectors. Recession risks have risen, but our current diagnosis is we are not there yet.”
In its annual assessment of the economy, the council cut its growth forecast for next year to 0.9%, citing a global slowdown that will knock Germany’s export-oriented manufacturing sector. Europe’s largest economy is expected to expand by just 0.5% this year, but will likely avoid a “broad and deeper” recession.
In March, the panel — which includes Isabel Schnabel, Germany’s nominee to succeed Sabine Lautenschlaeger on the European Central Bank’s Executive Board — expected growth of 1.7% in 2020 and 0.8% in 2019.
The Federal Statistics Office is due to publish a first estimate of third-quarter gross domestic product on November 14 which could show Germany tipped into a technical recession — two quarters of contraction. GDP shrank 0.1% in the second quarter and waning demand for German exports, as well as uncertainty fueled by Brexit and trade disputes, may have led to another decline in the July-September period.
Despite the gloom, Wieland rejected criticism that Germany isn’t doing enough to lift the economy out of its slump.
“It’s a myth that the German government isn’t investing,” he said in an emailed response to questions by Bloomberg.
“The constraining factors are others, such as excess capacity utilisation in construction, and barriers to entry for foreign competitors in that industry. Also, regulation, environmental concerns and citizens protests tend to block further or faster infrastructure investment.”