German Recession Part Of Cyclical Return To Normality, Says Bundesbank
September 23 2019 - 4:22AM
RTTF2
Germany is likely to enter a technical recession in the third
quarter, but it not a cause for concern, Bundesbank said in its
monthly report released Monday.
Elsewhere, the IHS Markit survey showed that Germany's private
sector contracted the most since late 2012 in September as the
downturn in manufacturing deepened and service sector growth lost
momentum.
The central bank expects only a slight decline in GDP overall in
the third and second quarters. Such a decline should currently be
seen as part of a cyclical return to normality as the German
economy emerges from a period of overheating, the central bank
said.
The economy contracted 0.1 percent in the second quarter. A
technical recession is defined as two consecutive quarters of
decline in economic output.
The bank noted that a mild recession does not necessarily
represent the end of the period of aggregate expansion, as the
contraction is confined largely to industry.
The flash composite Purchasing Managers' Index declined to 49.1
from 51.7 in August, the IHS Markit survey showed. That was the
first reading below the 50 'no change' threshold since April
2013.
Phil Smith, principal economist at IHS Markit, said the economy
is limping towards the final quarter of the year and, on its
current trajectory, might not see any growth before the end.
The services PMI came in at a 9-month low of 52.5 versus 54.8 a
month ago. The reading was expected to fall to 54.4.
The factory PMI plunged unexpectedly to a 123-month low of 41.4
compared to 43.5 in August.
Meanwhile, Germany's Mechanical Engineering Industry
Association, orVDMA, predicted a 2 percent decline in production in
2020. The industry lobby also confirmed a 2 percent contraction for
this year.
The VDMA said global economic weakness, trade disputes and
industrial structural change are weighing on business in mechanical
engineering. Moreover, the association said an upswing is not yet
in sight.
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