The German economy could enter a recession in the third quarter, the Bundesbank warned Monday, as the debate on government measures to support the economy swelled in Berlin.

"The economy could contract again slightly" this summer, Germany's central bank said in its monthly report, following a 0.1-percent decline in gross domestic product (GDP) in the second quarter.

"According to data currently available, industrial production is expected to shrink markedly in the current quarter as well."

Having seen a decline in trade against the backdrop of the US-China trade war, two of its main customers, Europe's biggest economy will enter what it technically defines as a recession should GDP shrink further.

Alarmist signals are reviving the political debate between those who support the German government's dogma of balanced budgets and those seeking more flexibility in order to revive the economy.

Germany can afford it on paper after five consecutive years of budget surpluses and interest rates for long-term loans that are extremely attractive to the federal government.

As US-China tensions intensify, economists have urged Berlin to fork out cash to avoid a recession, but Chancellor Angela Merkel's government has previously said things were not yet bad enough to warrant loosening the purse strings.

- Balanced budget -

Citing anonymous sources, Der Spiegel news magazine said Friday that the government "had no intention of continuing to set aside money in the event of a recession".

That would mean abandoning the so-called "black zero" doctrine committing the German state to a balanced budget.

On Sunday, German Finance Minister Olaf Scholz hinted at a potential intervention, stating that Germany could "fully face up to" a new economic crisis.

"It is sometimes important, when things change completely, for example, for us to have enough strength to react," he said during an open house day at government offices.

"If we have debt in Germany that is less than 60 percent of our GDP, that is the strength we need to stand up to a crisis," he added.

Scholz pointed to the estimated 50 billion euros ($55 billion) that the 2008-09 financial crisis had cost the German government.

"We have to be able to muster that and we can muster that -- that's the good news."

In particular, several Social Democrats, junior partners in Merkel's coalition government, want Germany to draw on its reserves to finance a plan to combat global warming or infrastructure works.

Flexibility instruments could enable Berlin to draw on its large budget surplus of 1.7 percent of its GDP as early as September.

Merkel's conservatives have so far resisted and abandoning the popular balanced budget stance seems unlikely with major regional elections looming in September and October.

Related Links
Global Trade News

Tweet

Thanks for being here; We need your help. The Space Media Network continues to grow but revenues have never been harder to maintain. With the rise of Ad Blockers, and Facebook - our traditional revenue sources via quality network advertising continues to decline. And unlike so many other news sites, we don't have a paywall - with those annoying usernames and passwords. Our news coverage takes time and effort to publish 365 days a year. If you find our news sites informative and useful then please consider becoming a regular supporter or for now make a one off contribution.
SpaceMediaNetwork Contributor $5 Billed Once credit card or paypal		SpaceMediaNetwork Monthly Supporter $5 Billed Monthly paypal only

Consumers supporting US economy amid manufacturing slump
Washington (AFP) Aug 16, 2019
American consumers appear to be carrying the US economy in their shopping carts as manufacturing slumps amid President Donald Trump's trade conflict with China, and financial signals warn of a possible recession. "The economy is phenomenal," Trump said Thursday. "We had a couple of bad days but we are going to have some very good days because we had to take on China." But despite his cheerleading, a raft of new US data reports showed a mixed picture on the economy, leading Wall Street to post a ... read more