With Brexit on the minds of many Europeans, the condition of the European economy is far from most people’s thoughts. So much focus has been placed on the one-shot deal with Brexit and the fears that Brexit will sink the European economy into recession that less focus has been placed on other factors that will impact Europe. And with Germany’s economy remaining the engine that drives Europe, anything that slows the German economy will slow the European economy as well.
Germany’s lack of growth is in large part due to a drop in exports, the growth of which has slowed to nearly zero this year. Next year exports are predicted to start declining, an ominous sign. Declining auto sales are a large part of that, with German automakers not immune to the overall drop in auto markets that is occurring throughout the world. And along with automakers, smaller firms and suppliers are also feeling the pinch and worried about the future.
Germany’s central bank warned that the German economy may have entered into recession in September, a recession that the German government seems to have to no way to combat. And with the prospect of Brexit still out there, the possibility of protracted trade conflict with the United States, and uncertainty about the future conduct of the European Central Bank’s monetary policy, the future doesn’t look too bright for Germany.
Don’t expect Chancellor Merkel to do anything about the recession either, as her policies haven’t exactly helped Germany in the past. If anything, her government is more likely to raise taxes or barriers to competition than it is to reduce government intrusion and allow businesses to operate effectively. But with Germany and Europe now moving into recession, it’s yet more evidence that central bank policies of quantitative easing have failed to get economies back to normal. The bubbles that they’ve created are beginning to show signs of weakness and it’s only a matter of time before they fully burst.