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Coronavirus brings recession risk back to the German economy

The risk piles on the problems for Germany.
Germany's economy may be heading towards a technical recession. Image: Shutterstock

Germany’s biggest bank has given the strongest warning yet that the nation is close to a recession as the coronavirus outbreak exacerbates its long-running industrial slump.

The lender now expects a slight contraction in the fourth quarter, and cast doubt on the prospect of any rebound at the start of 2020. Two straight contractions — a so-called technical recession — in the euro zone’s biggest economy would be a further blow to the bloc and could renew the pressure on German politicians to increase public spending.

The virus outbreak, which has already shut factories in China and disrupted supply lines to the global economy, piles on the problems for Germany after being hit by car-industry upheaval and trade tensions.


Fourth- quarter GDP figures are due on Friday. While the median prediction is for 0.1% growth, almost 30% of survey respondents forecast a contraction.

“The coronavirus presents a risk to the global recovery as it dampens hopes for a revival in the Chinese economy,” said Stefan Schneider, an economist at Deutsche Bank, in his report. “A technical recession in the winter half-year therefore seems increasingly likely.”

He estimates the virus will shave about 0.2 percentage point off German GDP in the three months through March. Given the current consensus for the quarter is 0.2% expansion, that puts the economy close to a second straight contraction.

There are mounting signs that the disease outbreak could do severe economic damage, at least in the near term. OPEC has slashed forecasts for global oil demand, and European Central Bank Chief Economist Philip Lane said on Tuesday that there could be “a pretty serious short-term hit” to the economy.

The euro zone’s woes were also illustrated on Wednesday in data showing the biggest drop in industrial output in almost four years. The ECB continues to pump monetary stimulus into the financial system, but President Christine Lagarde this week repeated her call for governments to do more.

© 2020 Bloomberg L.P.

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