A recession in Germany is not scary

In 1 week we will know whether Germany is going through a recession for the first time in 6 years. If that is the case, then it is a mild recession that will soon be over. The European Central Bank (ECB) does not mind if the shrinking economy forces the German government to intervene.

Has the German economy entered a recession? The answer to that question will be given on Thursday 14 November with the publication of the official growth figures. For now, the risk of a recession is high. German exports have been under pressure for some time, because Germany is indirectly affected by the trade war between the United States and China. The car industry is also struggling. For the Bundesbank This prompted the warning that economic growth may have returned to negative territory in the third quarter.

Unnoticed in recession
There are 3 reasons why a German recession is not something to be afraid of. A recession is a period of 2 consecutive quarters of economic contraction. In the second quarter, German growth came in at -0,1%. That won't have been much lower in the past 3 months. This makes it the lightest recession imaginable. Unemployment (at 3,1%) is hovering around its lowest level in nearly 40 years and consumers in Germany barely noticed the economic downturn. In addition, there is a good chance that this recession will be over by the time the official figures come out.

On Wednesday, November 6, it was announced that German factory orders for September rose by 1,3% compared to October. This indicates that German industry is getting off to a better start in the final months of the year. In addition, the estimate of -0,6% in August was revised upwards to -0,4%. The recovery is mainly due to new orders from outside the eurozone (+3%). If the trade dispute is resolved soon, the near future looks even brighter. However, even if that doesn't happen, it's not a disaster. The third reason why a recession is not a cause for concern is that the German government will not accept it if the economy shrinks for longer.

Lower taxes
Chancellor Angela Merkel has been under pressure for some time to give the economy a boost with fiscal measures. The ongoing recession is undoubtedly a reason to intervene. The European Central Bank (ECB) is particularly pleased with this, given that it is pulling out all the stops to get the economy going again. This is a lot easier when the German economy (as the main engine) is running well. A pick-up in European growth also opens the door for interest rates to rise again. That is good for the euro, but we are not there yet. First we have to see next week whether Germany is really out of a recession.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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