World Economy

German Economy Cools Down

German Economy Cools DownGerman Economy Cools Down

The German economy is showing signs of cooling down as inflation dropped to zero and exports fell the sharpest since 2009, Deutsche Welle reported.

German exports recorded their largest month-on-month decline since the 2009 financial crisis, in a sign that Europe's economic powerhouse is facing growing risks from weakening demand from abroad.

Data from Germany's Federal Statistics Office, Destatis, showed seasonally-adjusted exports dropping by 5.2% to €88 billion ($99 billion), compared to that in July. At the same time, imports tumbled by 3.1% to €72.8 billion, and the country's trade surplus narrowed to €19.6 billion.

However, compared with August 2014, German exports increased by 5.0% and imports by 4.0%.

The data follows sharp declines in factory orders and industrial production in August.

Economists said the data appeared to have been weighed down by the large number of holidays in August this year.

Risks to Exports

However, the economy faces significant risks in the form of a slowdown in emerging markets, particularly in China.

In addition, the diesel emissions scandal engulfing Germany's biggest carmaker Volkswagen could damage the country's biggest export industry and tarnish the "Made in Germany" image.

Germany's auto industry accounts for roughly one in five jobs. It accounted for 17.9% of Germany's €1.1 trillion ($1.25 trillion) in exported goods last year, according to Deutsche Bank, and has enjoyed above-average export growth since.

Prices Freeze

The annual inflation rate in the Rhine lands slowed to zero in September, fueling fresh fears of deflation and adding pressure on the European Central Bank to provide further monetary stimulus.

New data published by Destatis, on Tuesday showed that consumer prices in the country did not rise in September, compared with the same month a year ago.

The consumer price index showed zero change after rising only slightly by 0.2% in the previous month, fueling fears that prices could actually begin to fall again in the euro zone's biggest member state and beyond.

When using the EU's Harmonized Index of Consumer Prices, the inflation rate in Germany had already slipped below zero, the statisticians said, declining by 0.2% year-on-year.


When Everything Becomes Cheaper!

Falling prices are bad for any economy because they might cause consumers to hold off on purchases in anticipation of further price declines, thus stifling business investment and economic growth.

According to Destatis, the weaker inflation rate reflected the continuing sharp fall in energy costs, which fell by 9.3% in September after declining by 7.6% in August. The other components of German inflation, including rents, food and services, rose in September, the data showed.

The European Central Bank regards annual inflation rates of close to but just under 2.0% as conducive to healthy economic development.

In efforts to stave off deflationary pressures, the bank has cut its benchmark interest rate to a historically low level of 0.15%. In March, it also rolled out a controversial asset-buying program to boost inflation by pushing €60 billion ($67.4 billion) per month into the euro zone banking sector.

Even though Destatis published only a preliminary flash estimate, with final data to be released later in the month, the estimate already suggests that the oil price slump and weakening growth in China appear to undermine the ECB's efforts.