FRANKFURT – Europe got more bad news about its dominant economy Tuesday when the German government slashed its growth estimates for this year to 1.2 per cent from 1.8 per cent.
The cut follows a run of disappointing data on exports, industrial production and factory orders — the heart of Germany’s manufacturing and export-dominated economy. The drip, drip of bad news has raised fears that Germany could slip back into recession or stagnate, dragging down the 18-country eurozone — which itself is struggling to stoke a recovery.
The Economy Ministry also cut the forecast for next year, to 1.3 per cent from 2 per cent.
Economy and Energy Minister Sigmar Gabriel blamed external causes. He said geopolitical conflicts and mediocre global growth were holding Germany back, while domestic demand and employment remain strong. Germany is a major exporter, selling autos and industrial machinery into the growing economies in China and the United States.
“The German economy finds itself in difficult external waters,” Gabriel said in a statement.
The conflict between Russia and Ukraine has rattled businesses, leading them to hesitate in making investment in expanding production. The spread of the radical Islamic State militia in Syria and Iraq is another unsettling factor, while headlines about Ebola probably don’t help, either.
The forecast revision came on top of a downbeat reading for another indicator, the ZEW survey of investment analysts. The index fell to minus 3.6 points from 6.9 points in September. That was worse than the zero expected by market analysts. The ZEW survey, based on interviews, is more forward-looking than hard data on industrial production and orders, which report what happened in the past.
Germany’s troubles are adding to worries about the overall fate of the European economy. The eurozone economy did not grow at all in the second quarter compared with the quarter before, dragged down by a 0.2 per cent contraction in Germany. The weak eurozone figure followed four quarters of unsatisfactory growth as the currency union made a start at recovering from a crisis over high government debt.
The failure to achieve stronger growth and to lower unemployment from a painfully high 11.5 per cent has raised fears in the eurozone of another downturn that could complicate member countries’ efforts to reduce debt.