Today, data revealing that production in Europe has dropped significantly, has sparked fears that Germany might face recession due to the trade war between China and the United States.
Industrial output decreased by over 5 percent in comparison with last year’s figures, indicating that Europe’s biggest economy might have contracted in the second quarter.
Germany is largely reliant on exporters that sell a high quantity of goods to the U.S and China, which are currently butting heads in a sour trade war.
“We would characterize today’s industrial production report as devastating, with no silver lining,” said economists at the Dutch bank, ING. “We should prepare for contraction in the German economy.”
A strategist at Societe Generale, Kit Juckes, says, “Weaker global trade, a struggling global auto industry, Brexit, and China’s economic problems get pretty close to a perfect storm for Germany”.
Repercussions of the trade war
But the German economy isn’t suffering alone. As a result of the trade war, a month ago, the International Monetary Fund dropped its global growth projection for the rest of the year, as well as next year. If the trade war continues to accelerate, global growth for 2020 will drop by half a percentage point.
For the first time in just over a decade, the United States Federal Reserve cut rates last week. Today, the Reserve Bank of India also announced their fourth back-to-back rate cut, and several other central banks have followed suit.
Analysts at Capital Economics say that the trade war will probably intensify due to Chinese President Xi Jinping refusing to surrender to U.S demands.
“As such we expect the tariffs to go ahead and furthermore, that they will be raised to 25 percent on all Chinese goods imports to the U.S before long,” wrote the analysts.