German exports slumped by 5.8% in August, their biggest fall since the height of the global financial crisis in January 2009, a clear sign that Europe’s largest economy is faltering amid broader Eurozone weakness and crises abroad, Business Standard reported. The Federal Statistics Office said late-falling summer vacations in some German states had contributed to the fall in both exports and imports.
The falling rate is raising fears of a triple-dip recession and a disastrous relapse for the rest of the eurozone.
The country’s five economic institutes – or “Wise Men” - slashed their growth forecast for Germany from 2 percent to 1.2 percent next year, warning that the latest measures unveiled by the European Central Bank will add “hardly any” extra stimulus to the real economy and may be unworkable.
Christine Lagarde, the head of the International Monetary Fund, warned that the eurozone is at “serious risk” of falling back into recession if nothing is done, and is in danger of suffering a lost decade. “If the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable,” she said. The wording is a clear call to Germany for an immediate shift in policy.
Economic Stagnation
The Wise Men said in a joint report that the German economy is now in “stagnation”, with unemployment likely to rise next year. They called for a burst of spending on roads and key infrastructure, criticizing the balanced-budget mantra of finance minister Wolfgang Schauble.
The report demanded corporate tax cuts to boost the dismal rate of return on capital in Germany, lamenting that the country had fallen to 56th place on the “burden of government regulation” in the World Economic Forum’s index of global competitiveness. It is 104th for the number of procedures needed to start a business, 108th for the tax rate as a share of profits, and 141st for wage flexibility. But Germany is nevertheless 4th overall due to superb business innovation, ahead of the US (5), Hong Kong (7) and the UK (10). The Wise Men attacked the ECB’s plans for asset purchases, saying that there are no more than €150b of asset-backed securities (ABS) and €600b of mortgage bonds available to buy. The bank cannot plausibly purchase more than a fraction of this. Earlier efforts to buy €40b of covered bonds ran into the ground, ending at €16b.
