Germany’s GDP could stagnate or even decline in the third quarter, Bundesbank has warned

The German economy has been shrinking over the past two years and will remain stagnant for the rest of the year as it continues to grapple with economic malaise, Bloomberg reported on Friday.

According to a survey conducted by the outlet, the EU’s top economy has been stalling in the three months through September, marking a deeper-than-expected decline.

Economists have already started downgrading their forecasts for this year, with some now seeing protracted stagnation or even another downturn.

“While we expect the market to see a mild recovery at the end of 2024 and in 2025, much of it will be cyclical, with downside risks remaining acute,” Martin Belchev, an analyst at FrontierView told Bloomberg.

He warned that the faltering automotive sector will further exacerbate downward pressures on growth as the top four German carmakers have seen double-digit declines.
Thousands of EU automotive jobs at risk – Bloomberg

The country’s central bank said on Thursday in its monthly report that the German economy may already be in recession. According to the Bundesbank, gross domestic product (GDP) “could stagnate or decline slightly again” in the third quarter, after a 0.1% contraction in the second quarter.

Economic sentiment in the country has suffered due to weak industrial activity, Budensbank President Joachim Nagel said on Wednesday.

“Stagnation might be more or less on the cards for full-year 2024 as well if the latest forecasts by economic research institutes are anything to go by,” he said.

German industry is struggling amid weak demand in key export markets, shortages of qualified workers, tighter monetary policy, the protracted fallout from the energy crisis, and growing competition from China, Bloomberg noted.

The Eurozone’s largest economy has been falling behind its peers over the past years, largely due to a prolonged manufacturing downturn. Germany was the only Group of Seven economy to contract in 2023.

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A third of the region’s major car plants are currently operating at half capacity or less, according to a report

European auto makers are facing more plant closures as they struggle to keep up with the electric vehicle (EV) transition amid slowing demand and growing competition, Bloomberg reported on Wednesday.

According to the outlet’s analysis of data from Just Auto, nearly a third of the major passenger-car plants from the five largest manufacturers – BMW, Mercedes-Benz, Stellantis, Renault and VW – were underutilized last year. The auto giants were producing fewer than half the vehicles they have the capacity to make, the figures showed.

Annual sales in Europe are reportedly around 3 million cars below pre-pandemic levels, leaving factories unfilled and putting thousands of jobs at risk.

The report pointed out that sites shutting down would add to concerns that the region is facing a protracted downturn after falling behind key competitors, the US and China.

“More carmakers are fighting for pieces of a smaller pie,” Matthias Schmidt, an independent auto analyst based near Hamburg, told Bloomberg. “Some production plants definitely will have to go,” he warned.

VW announced last week it was considering closing factories in Germany for the first time in its near nine-decade history. The automaker said it was struggling with the transition away from fossil fuels.

BMW has warned that tepid demand in China poses a further threat to sales and profits.

Volkswagen planning major cutbacks in Germany

The threat of factory closures in Europe has worsened in recent years amid skyrocketing energy prices and worker shortages that have driven up labor costs.

“Failure to turn things around would deal a blow to the region’s economy,” Bloomberg wrote, pointing out that the auto industry accounts for over 7% of the EU’s GDP and more than 13 million jobs.

Car-assembly plants often are “anchors of a community,” securing work at countless nearby businesses, from suppliers of engine parts and trucking companies to the local bakery delivering to the staff cafeteria, the report said.

Closing plants is usually “the last resort” in a region where unions and politicians have a strong hold over corporate decision-making, concluded Bloomberg.

There’s “massive consolidation pressure” for auto plants in Europe, Fabian Brandt, an industry expert for consultancy Oliver Wyman, said. “Inefficient factories will be evaluated, and there will be other kinds of plants that shut down,” he claimed.

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It’s now $45 trillion higher than its pre-pandemic level and is expected to continue growing rapidly, a top trade body has warned

The global debt pile increased by $8.3 trillion in the first quarter of the year to a near-record high of $305 trillion amid an aggressive tightening of monetary policy by central banks, the Institute of International Finance (IIF) has revealed.

According to its Global Debt Monitor report on Wednesday, the reading is the highest since the first quarter of last year and the second-highest quarterly reading ever.

The IIF warned that the combination of such high debt levels and rising interest rates had pushed up the cost of servicing that debt, prompting concerns about leverage in the financial system.

“With financial conditions at their most restrictive levels since the 2008-09 financial crisis, a credit crunch would prompt higher default rates and result in more ‘zombie firms’ – already approaching an estimated 14% of US-listed firms,” the IIF said.

Despite concerns over a potential credit crunch following recent turmoil in the banking sectors of the United States and Switzerland, government borrowing needs to remain elevated, the finance industry body stressed.

According to the report, aging populations and rising healthcare costs continue putting strain on government balance sheets, while “heightened geopolitical tensions are also expected to drive further increases in national defense spending over the medium term,” which would potentially affect the credit profile of both governments and corporate borrowers.

“If this trend continues, it will have significant implications for international debt markets, particularly if interest rates remain higher for longer,” the IIF cautioned.

The report showed that total debt in emerging markets hit a new record high of more than $100 trillion, around 250% of GDP, up from $75 trillion in 2019. China, Mexico, Brazil, India and Türkiye were the biggest upward contributors, according to the IIF.

As for the developed markets, Japan, the US, France and the UK posted the sharpest increases over the quarter, it said.

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