The German economy is the perfect thermometer to check the health of the global economy. According to the ‘German Global Trade Momentum’ (GGTM), something has to quickly happen to prevent a deep and global recession. Unfortunately, no signs of improvement can be seen.
The GGTM as indicator is the result of a combined study of credit insurer Euler Hermes and the Allianz insurance group. They researched to what extent the German economy can be seen as a heart monitor for global trade dynamics. This was translated into a calculation model, the German Global Trade Momentum. This is mostly based on new orders in the processing industry and the export expectations.
Johan Geeroms, Head of Risk Underwriting Euler Hermes Netherlands: “Germany is the third exporter in the world. The country has an open economic structure, and as exporter they’re widely represented in a number of economic sectors. Germany is closely connected to the global economy. As a result, global developments can be observed earlier in Germany than anywhere else.”
The severely weakening German economy is an indicator for global developments, according to Geeroms. “Naturally, the decline of the car industry has a lot of influence on the German economy, but that has been taken into account in the GGTM. We’ve noticed that the entire German industrial production continues to decline after two steady months. The German industry infects the entire eurozone, where the processing industry performs plain bad everywhere.”
No sign of recovery
The door to a global recession is wide open, according to Geeroms. “In the second quarter, the decline in global trade continued as well. Our research department sees no sign of recovery. Looking at the GGTM, we’ve noticed that German export expectations have never been as low in seven years as they are now. The level of new orders in the German production sector is at -8.6% now compared to a year ago, and that’s its lowest point in ten years. The industrial production decreased by -5.2% in one year. If the GGTM predicts the global economy, that doesn’t mean much good for the rest of 2019. It’s almost inevitable that the global economy will decrease in 2019. That will be the first time since the financial crisis.”
Zooming in on Germany, Geeroms concludes that the negative signs are only increasing: “Take the trade war, for example. That’s only becoming worse. It now appears to be turning into a currency war. Trump thinks the euro is too strong compared to the dollar. He wants to compensate for that with additional import levies on European products. That will definitely hit Germany hard.”
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