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EU’s largest economy, Germany is now its ‘major underperformer’ - Credit Suisse

EU’s largest economy, Germany is now its ‘major underperformer’ - Credit Suisse
London-based economists at the investment banking company Credit Suisse have named Germany a “major underperformer” of the European block of countries, citing a significant decrease in the nation’s GDP and purchasing power.

The ongoing trade slump remains challenging for the German economy. Once the major outperformer of the euro-area economy, [Germany] is now the major underperformer, its huge trade imbalance a huge burden”, the experts stated, as cited by Fox Business. This valuation was issued after Credit Suisse economists reviewed the latest economic indicators. For instance, they note that the German economy grew at mere 0.4 percent year-over-year from April through June, its weakest indicators in over six years. They also noted the country’s economy showed a 0.1 percent quarter-over-quarter decrease, which signified Germany was Europe’s only major economy to shrink in the past several months.

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However, according to Credit Suisse economists, German hardships would not affect other European states as Germany has a “huge current account surplus” - around $276 billion. It is the largest account surplus globally, formed by large export volumes and lower imports due to small domestic demand. Credit Suisse also expects the European Central Bank to help ease the situation in case other economies in the region start struggling, for instance, by further lowering rates.

“Resumption of asset purchases and new long-term refinancing operations [by ECB] should be supportive of domestic demand outside Germany,” the economists noted. They cited the situation in Italy as an example.

For example, that shift in policy […] led to a huge fall in Italian government bond yields. That more than reversed the financial tightening of last year that contributed materially to Italy's slowdown,” the economists explained.

As a remedy to the current sluggishness in the German economy, Credit Suisse offered two measures: an end to the trade war between the US and China or an introduction of a German fiscal stimulus, although the latter is unlikely, as Germany is too keen on sustaining a balanced budget.

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Also, the latest move by the World Trade Organization (WTO) could further shatter Germany’s economy. Earlier this week, WTO ruled that Washington may impose economic sanctions on EU states after it became known that US plane-manufacturer Boeing had lost some $7.5 billion a year due to subsidies handed out by European governments to its arch-competitor, Europe’s own Airbus. Although the European aircraft manufacturer filed a similar complaint against the US Boeing, Washington had already come through with tariffs targeting, among other things, a number of German products. The tariffs will come into effect on October 18 and will make German goods like wine and coffee more expensive, setting a new hurdle in front of Germany’s already weakened economy.

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