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Suddenly, the heart of Germany’s economy looks shaky

Various tools are seen hanging from the ceiling at the engine manufacturing unit for the new Mercedes AMG GT super sports cars during a factory tour for journalists at the Mercedes AMG headquarters in Affalterbach near Stuttgart, September 9, 2014. According to AMG, each engine for the new sports car will be manufactured by hand from a worker, with his personalized name plate on it. The new Mercedes AMG GT, from German car manufacturer Mercedes' sports car unit AMG, will be unveiled during a World Premier party on September 9. REUTERS/Kai Pfaffenbach (GERMANY - Tags: TRANSPORT BUSINESS EMPLOYMENT SPORT MOTORSPORT)
Reuters/Kai Pfaffenbach
Waiting for the next order.
Published This article is more than 2 years old.

All of the sudden, the heart of Germany’s high-end manufacturing economy looks incredibly weak.

Today, Germany reported its biggest monthly tumble in exports since 2009. They were down 5.8% in August.

Earlier this week, a similar reading on industrial production collapsed, in its biggest monthly decline since January 2009. Industrial output fell 4% in August, compared to July, raising the prospect of a recession.

Things don’t look likely to improve over the short-term either. German manufacturing orders, a leading indicator for output, also fell sharply in August. The 5.7% decline was, again, the largest monthly drop since the worst of the global recession in early 2009.

So is it a sure thing that Germany is about to slip into recession again? It would stand to reason. Germany is part of Europe, and the European economy is in a terrible mess. Exports account for about 38% of German GDP, according to Oxford Economics. And the biggest destination for its exports are European nations. (For instance, France is its largest export market, the destination of 9.2% of all exports in 2013.) About 57% of all German export goods are shipped to other European Union nations.

On the other hand, Germany’s domestic economy looks quite strong. At 4.9% in August, unemployment remains some of the lowest on record. And German households seem to be feeling alright, as retail sales surged 2.5% in August. Germans have also been preparing themselves—at least mentally—for a downturn for some time now.

Moreover, if the threat of recession is enough to goad German policy makers into making some long-term, productivity-enhancing investments—something that has been sorely lacking in recent years—that could actually give Germany’s domestic economy quite a bit of momentum. In other words, don’t declare the German recession underway just yet.

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