Country Economic Forecasts: Germany

Content Type
Policy Brief
Oxford Economics
Germany appears to be slipping deeper into recession. The latest industrial figures are alarming: production fell 2.1% in October and orders were down 17.3%. If output remained at current levels to year-end, then Q4 would be down 3.2% on Q3, but the situation is deteriorating. The manufacturing PMI is below 40 and the expectations component of the Ifo is at its lowest level since the first oil crisis in the early 1970s. Key to the rapid decline has been an abrupt halt to investment, both in Germany and globally. Investment in machinery and equipment had stalled in Q3 and domestic orders of capital goods then dropped 6% in both October and November. Business investment will fall by over 4% in 2009. But exports have also seen a rapid decline, having fallen in both Q2 and Q3, while export expectations are near all-time lows. Export volumes are expected to drop next year, despite the depreciation of the euro. We have slashed our growth forecasts, with GDP now likely to fall by at least 1% in Q4. And we now do not expect the economy to emerge from recession until 2009H2 and for the economy to shrink by over 2% in 2009 overall – the biggest drop in over 60 years. Rapidly declining oil prices and an extended recession mean inflation could fall close to zero by next summer. Inflation has already slowed to 1.4% in November from a peak of 3.1% in July.
Economics, Financial Crisis
Political Geography
Europe, Germany