German recession fears mount as exports plunge

Thu Oct 9, 2014 9:05am EDT
 
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By Alexandra Hudson

BERLIN (Reuters) - German exports plunged in August by their largest amount since the height of the financial crisis and leading institutes slashed their forecasts for growth, fuelling a debate on whether Berlin is doing enough to prop up Europe's economy and its own.

Exports slumped by 5.8 percent, the biggest drop since January 2009, in the latest sign that Europe's largest economy is faltering amid broader euro zone weakness and crises abroad that have battered confidence and led German firms to postpone investment plans.

"The economy seems to need a small miracle in September to avoid a recession in the third quarter," said Carsten Brzeski, an economist at ING.

The Federal Statistics Office said late-falling summer vacations in some German states had contributed to a fall in both exports and imports, but the figures still painted a gloomy picture for an economy that until recently was hailed in Berlin as Europe's "growth locomotive".

Earlier this week, industrial orders and output data suffered their steepest drops in more than five years.

Hours after the trade data was released, a group of leading economic institutes joined the International Monetary Fund (IMF) in slashing forecasts for German growth. The institutes are now expecting growth of 1.3 percent this year and 1.2 percent next, down from 1.9 and 2.0 percent previously.

The institutes also urged the government to cut corporate taxes, spend more on infrastructure and education, and take steps to encourage private investment, stressing that there was sufficient "financial room for maneuver".

Chancellor Angela Merkel's government has faced pressure from within Germany as well as from ailing European states such as France and Italy to ratchet up public investment instead of prioritizing deficit reduction.   Continued...

 
Shipping terminals and containers are pictured in the harbour of the northern German of Bremerhaven on the banks of the river Elbe, late October 8, 2012. REUTERS/Fabian Bimmer