Bundesbank reiterates warning of technical recession in Germany

The Bundesbank joined members of the government, think tanks and business analysts on Tuesday, warning of a plausible slump for Europe’s export-driven powerhouse.

Recession is technically defined as two successive quarters of negative growth, with Germany moving from sluggish growth to negative over the summer.

The Bundesbank referred to the Sino-American trade war and Brexit, factors with a significant bearing on industrial production. According to the Deutsche Bank Chief Economist Stefan Schneider, the situation is particularly dire for the automotive and chemical industries.

Finance Minister Olaf Scholz warned on Sunday that Germany could “fully face up to” a new economic crisis, Reuters reports. According to German media, Scholz is considering a €50bn stimulus package that more or less resembles the government’s response to the financial crisis a decade ago.

For nearly a decade Wolfgang Schäuble supported a zero-deficit policy or the “black zero” approach, and Scholz is known to follow the same school of thought. But the context is changing.

First of all, Germany’s overall debt-to-GDP ratio is expected to fall below the EU’s crucial 60% threshold this year, providing further political justification for fiscal expansion in 2020.

Secondly, approximately €12,3 trillion worth of bonds in the world market is currently offering negative yields. On Wednesday, the German government is auctioning a 30-year bond maturing in August 2050 with 0% interest. The zero-coupon bond provides security, at a moment in time when the European Central Bank is offering negative interest rates, which means investors have to pay for the security of holding reserves. ECB deposit rates are expected to slide further into negative territory in September.

This means that Germany is in a position to stimulate the economy at minimum cost, as bond yields are falling not only in Europe but globally. The UK, France, Spain and, controversially, Italy are planning their own stimulus packages. A policy U-turn from Germany would consolidate an emerging consensus, even if it were timid.


The author: Michel THEYS

Michel Theys, a Belgian native, began his career as a civil servant, serving the public for several decades. After retirement, he shifted gears to follow his passion for journalism. With a background in public administration, Theys brought a unique perspective to his reporting. His insightful articles, covering a wide array of topics, swiftly gained recognition. Today, Michel Theys is a respected journalist known for his balanced and thoughtful reporting in the Belgian media landscape.

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