Germany Teeters on the Edge of Recession

While Chancellor Angela Merkel embroiled herself in the endless search for a solution to the sovereign debt woes of Greece, Spain, Portugal, Italy, and Ireland, Germany’s multinationals and Mittelstand companies increased exports to East Asia, Latin America, and elsewhere. Local German consumption was fairly robust, too. So why have Goldman Sachs economists Jan Hatzius and Dominic Wilson predicted a recession for Germany in the midst of all this plenty?

The pair says that the euro crisis is catching up with Europe’s top economy. The political squabbling across the Continent has affected business confidence in much of Europe and now Germany as well. Gross domestic product grew only 0.1 percent in the second quarter compared with the previous quarter. Orders for German companies fell for a second month in August, the manufacturing sector expanded at the weakest pace in two years in September, and in the same month German business confidence dropped to a 15-month low. “At the moment, companies are benefiting from existing orders on their books,” says Andreas Scheuerle, an economist at DekaBank in Frankfurt. “But we have to expect weaker data as fears about the debt crisis and financial market tensions push back investment decisions. I’m seriously concerned about a recession.”