Europe’s biggest economy is officially in recession.
From Bloomberg:
[Germany's] Gross domestic product dropped a seasonally adjusted 0.5 percent from the second quarter, when it fell a revised 0.4 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a 0.2 percent decline, the median of 40 forecasts in a Bloomberg News survey showed. The economy last contracted this much over two consecutive quarters — the technical definition of a recession — in 1996.
And the reactions from banks are predictably downbeat. Commerzbank economist Ralph Solveen comments:
This doesn’t look good at all. It looks as if trade was a drag, particularly weak exports. Domestic demand will have remained weak as well. The fourth quarter will be very weak. We’ll probably see even worse figures then. We should see things heading down in the first half of 2009 as well, with a stabilisation after that. The industrial orders and sentiment indicators like the Ifo index are pointing in this direction. The drop in the oil price is not strong enough to offset other negative factors. The rate cuts by the ECB will not begin working until the end of 2009.
While Goldman Sachs’ Dirk Schumacher has this revelation:
The decline is stronger than expected. That’s a disappointment. Unfortunately, early indicators are pointing to things not getting better in the fourth quarter. The trend shows there is no improvement. The fourth quarter will likely also end up in a minus.
We are in a recession.
And ING’s Carsten Brzeski:
The headwinds of the financial crisis and the global economic slowdown are blowing right in the face of the German economy. Even more worrying, the full impact of the financial crisis still has to unfold. Anecdotal evidence and leading indicators are scary. New industrial orders have been plunging since last year, with the latest drop by 8% MoM in September being a new record low. Moreover, the industrial production has run out of steam with companies only working off their backlogs. Several automobile producers have announced temporary production stops and nearly finished orders are being cancelled at the last moment. If you think today’s numbers are already bad, just wait for the next quar
Couple that with the news yesterday that one of Germany’s most influential labour unions, IG Metall, settled for a 3 per cent wage increase instead of its demanded 8 per cent, and you have the settings for a rather big interest rate cut from the ECB — even though, as noted by the Commerzbank economist above, they may take a while to have an effect. This from a Bank of America note out today:
Throughout much of 2008, the ECB had worried that the oil-driven spike in headline inflation could trigger serious “second round” effects, spilling over into wage and price-setting behaviour and thus turning a temporary burst in inflation into a more protracted problem. For the ECB, the IG Metall deal should be proof that the Eurozone labour market, although still beset with many inflexibilities, is reacting to the sharp downturn in demand. That should help to make the inflation hawks at the ECB endorse further rate cuts soon. We look for a 50bp cut in December, with a good chance of a 75bp move instead.
Maybe that’s why German Playboy is running this story:
Nov. 12 (Bloomberg) — About one in every four Germans doesn’t want investment bankers among their friends, making them almost as unpopular as convicted criminals and prostitutes, Playboy’s German edition said, citing a survey.________