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Germany: Recession looming? – ING

Carsten Brzeski, chief economist at ING, points out that the German Ifo index has dropped to its lowest level in more than two years as it has ended the year at 101.0, from 102.0 in November.

Key Quotes

“Both the expectation and the current assessment component dropped in December.”

“In the short run, today’s Ifo index signals that the risk of the unimaginable - a technical recession (two consecutive quarters with negative growth) - has increased. Up to now, evidence for an imminent rebound in industrial production in the final quarter has still been hard to find. Only private and government consumption have been safe bets as growth drivers.”

“Looking beyond the fourth quarter, however, there is a silver lining for the German economy. A strong labour market and higher wages should support consumption, fading of trade tensions and a weak euro should support exports, and low interest rates, high capacity utilization and strong credit growth bode well for private investments.”

“The record-high fiscal surplus combined with the need for infrastructure investments should bring decent fiscal stimulus to the economy. In the light of a recent general mood swing towards more negativity, it has become easier for us to remain moderately optimistic.”

“A turbulent year for the German economy and German politics is drawing to a close. The economy has been on a rollercoaster ride between defying and suffering from external events, strong fundamentals and homemade structural problems. For now, strong domestic fundamentals, the weak euro and some (temporary) relief from possible external shock factors such as Brexit and trade all bode well for a rebound of the German economy going into 2019.”

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