Investing.com - Germany’s economy shrunk by 0.1% in the three months to June, caught in the cross-fire of the trade war between U.S. and China.
Preliminary figures released on Wednesday by the state statistics office Destatis also showed that the annual rate of growth in Europe's largest economy slowed to zero, the worst performance since 2013, when the euro zone was still struggling with the hangover from its sovereign debt and banking crisis.
Gross domestic product still rose 0.4% on the year when adjusted for the lower number of working days this year.
The numbers were in line with consensus forecasts, and follow months of disappointments from the industrial sector. Even so, the yield on the benchmark 10-year German government bond fell to a new record low of -0.62%, although the euro itself showed little reaction to the data.
"I don’t expect a recession, but to get interest rates back on a sustained rising path, a fiscal stimulus package from the federal government would be necessary, “ said Deutsche Bank (DE:DBKGn) strategist Ulrich Stephan in a morning note. Chancellor Angela Merkel had said before the numbers were released that she still doesn't think a stimulus package is needed.
The hardships of the manufacturing sector have slowly started to filter through to other sectors, with service sector activity slowing in both of the last two months and domestic orders to manufacturers also starting to weaken.
As such, the growth engine that pulled the euro zone through its existential crisis earlier in the decade is now lagging the rest of the currency area. Eurozone GDP expanded by 0.2% in the second quarter, according to figures released by Eurostat.
"Today’s GDP report definitely marks the end of a golden decade for the German economy," ING economist Carsten Brzeski said in a note. "Trade conflicts, global uncertainty and the struggling automotive sector have finally brought the German economy down on its knee."
Brzeski argued, however, that it was the uncertainty created by trade conflicts, rather than their direct effects, that was principally to blame. In addition the U.S.-China trade conflict, Germany has also been affected by the U.K.'s endless Brexit drama, which has caused investment to collapse in one of Germany's biggest export markets over the last three years.
The picture looks likely to get worse before it gets better. The ZEW think-tank's forward-looking sentiment index fell to its lowest since December 2011 years this month, with an index reading of -44.1. The Ifo survey, which takes in responses from a broader cross-section of businesses, has also hit a series of multi-year lows this year. A raft of companies such as Daimler, Thyssenkrupp (DE:TKAG) and BASF have issued profit warnings in recent weeks, while the labor market has also started to weaken as firms put increasing numbers of staff on shortened working hours.