Germany catches European crisis fever
Germany catches European crisis fever

Germany long appeared immune to Europe's debt crisis, as deep reforms undertaken years ago helped steel the economic powerhouse against the current financial storms lashing its neighbours.

But a raft of new economic data suggest that Germany, too, is slowly succumbing to the crisis fevers and could even fall back into recession later this year, analysts say.

For an economy as open as Germany's, the route of infection is obvious: its exports.

Germany is the world's third largest exporter behind China and the United States and until recently, exports were the main driver of its economy.

However, thanks to deep and often painful reforms in recent years that have helped bring unemployment down to record lows, fuelling a corresponding boom in consumer spending, domestic demand has become the twin engine of Germany's economic miracle.

While many of Germany's eurozone partners were in recession, the country notched up growth of 0.5 per cent in the first three months of this year.

Nevertheless, with much of Europe in the doldrums, German exports, too, are faltering, threatening to bring the economy as a whole to a near standstill in the second quarter, analysts said.

Following an increase of 4.1 per cent in May, exports fell by 1.5 per cent in June, weighed down primarily by falling exports to the other 16 countries that make up the eurozone, according to the latest data compiled by the national statistics office Destatis.

Imports - a barometer of domestic demand - were down, too, falling by 2.9 per cent.

The slump in demand is hitting industry and the manufacturing sector, the backbone of the German economy, separate data published by the economy ministry showed.

Factory orders fell by a bigger-than-expected 1.7 per cent in June, more than wiping out the modest increase seen the previous month, and industrial output declined by 0.9 per cent.

Storm clouds have been piling up over the German economy for a number of weeks now.

And not only exports are being hit, but domestic demand is, too.

New car registrations - a key gauge of demand in one of the most important industrial sectors - fell sharply last month, retail sales are also in decline and unemployment is on the rise again, which could hurt consumer spending.

Last month, business confidence dropped for the third month in a row and investor confidence hit a six-month low.

And the international debt rating agency Moody's recently took the first step toward stripping Germany of its coveted top triple-A credit rating in view of the incalculable costs of the never-ending crisis.

By contrast, rival rating agencies Standard & Poor's and Fitch both maintained their top AAA credit rating for Germany given the country's strong fundamentals and outlook.

The West Australian

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