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.