Germany Recession Indicator Flashes Yellow (Median Possibility 32%)

The ECB will soon be in a bind as the European economy slows. Germany leads the slowdown.

Gustav Horn, one of Germany’s most-experienced business-cycle analysts, says the Possibility of German Recession Increases Noticeably. The following snips are via Goggle translation from German.

The uncertainty in the economy and especially in the financial markets, which was largely triggered by US trade policy, is having an effect: the risk of Germany falling into recession over the next three months has increased noticeably from March to April. This is signaled by the economic indicator of the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation.

For the period from April to the end of June, the early warning tool, which brings together the latest available data on the economic situation, has a median recession probability of 32.4 percent. In March, the recession risk was only 6.8 percent. The indicator, which operates according to the traffic light system, jumps from “green” to “yellow” and thus signals increased uncertainty (recession probability from 30 percent).

The IMK explains the significant increase in recession risk with a mix of three factors: the recent noticeable decline in industrial production, increased volatility on the stock markets and a deterioration in sentiment indicators.

“President Trump’s flirtation with protectionism sends out shockwaves that hit the German economy through the financial markets. Even before it is clear whether the American punitive tariffs will be extended to European goods, there is a great deal of uncertainty, “says the scientific director of the IMK, Prof. Dr. med. Gustav A. Horn.

Numerous data from the real economy and the financial sector flow into the IMK economic indicator. In addition, the instrument takes into account sentiment indicators. The IMK uses industrial production as a benchmark for a recession because it reacts faster to a slump in demand than gross domestic product (GDP). The early warning system signals a recession when industrial production shrinks by at least one percent over a five-month period.