German authorities will release economic growth estimates for the second quarter today that are expected to confirm an economic contraction of 0.1% in the three months to July.
36% of Germany’s total output was exported in 2018, making the country vulnerable to prevailing global economic conditions. Particularly, the US-China trade war and Washington’s threat of increasing tariffs on German automobiles has negatively affected demand in those markets. A stagnant European economy amid Brexit concerns has also taken its toll on Europe’s largest economy.
Germany’s domestic demand is currently compensating for a fall in manufacturing output, and, with unemployment at a low 3.1%, Berlin is less likely to turn to expansionary policies in the near future. With already low interest rates in response to international circumstances, a balanced budget and an economy functioning at full capacity, authorities have limited measures to boost production and increase output.
If output contracts in the third quarter, which is probable, Germany will enter a recession for the first time in six years. Increasing protectionism is likely to shift German policies towards decreasing reliance on manufacturing exports and boosting domestic demand through investment in public infrastructure and education in the long run.
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