Recession looms for eurozone powerhouses Germany and France
Fears are mounting that the eurozone’s two largest economies – Germany and France – are on the brink of falling back into recession.
The Bank of France predicts that the economy will shrink by 0.1 per cent contraction over the third quarter of the year, following its earlier forecast of a similar-sized contraction in the second quarter.
The prediction is based on the central bank’s monthly index of business activity, which showed that sentiment fell in both the manufacturing and services sectors.
Recent business surveys have suggested that the third quarter got off to a poor start for the eurozone’s second largest economy. Markit’s purchasing managers’ indices show manufacturing activity dropped to a 38-month low during July as domestic demand demonstrated continued weakness, offsetting a slight improvement seen in the service sector.
Markit senior economist Jack Kennedy says: “With GDP looking likely to have dipped in Q2, July’s PMI figures suggest that the second half of the year looks set to be a continued hard slog.”
Meanwhile, figures from Germany’s economy ministry showed industrial production as being weaker than expected during June, falling by 0.9 per cent month-on-month – down from the 1.7 per cent gain seen in May. The data comes after a number of disappointing economic releases in the eurozone’s biggest economy.
Today’s industrial production follows recent figures showing German factory orders declined by more than expected in June while exports have also fallen as the eurozone recession continues.
Capital Economics chief European economist Jonathan Loynes says: “As such, there are few signs as yet of any boost from the drop in the euro exchange rate.
“With the supposedly ultra-competitive German manufacturing sector in recession, the omens for the rest of the eurozone economy are extremely worrying.”
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