Europe's largest economy, Germany, is seeing a decline in its fortunes far more dramatic than previously feared.
Yesterday brought another crop of poor economic news, with exports falling at their fastest rate in 40 years and industrial orders down by a catastrophic 24 per cent on this time last year.
The strong euro, a rapid collapse in demand in previously strong export markets such as the US, the UK and China, and depressed business and consumer confidence at home have left the German economy facing its worst year since the foundation of the Federal Republic in 1949. It suggests that the global economic slowdown will be more evenly spread than had been predicted, the pain extending far beyond countries such as the US, UK, Spain, Australia and Ireland, where the real estate and consumption booms were the most extreme.
November saw the sharpest monthly drop in German exports since 1969, underlining the urgency of the coalition government's efforts to save the economy. German exports fell 10.6 per cent from October and 11.8 per cent from November last year, the Federal Statistical Office said.
The German trade surplus shrank to €9.7bn (£8.7bn) in November from €16.4bn. Exports fell by 10.6 per cent in that month alone, the largest decline since 1969. Germany's traditional strength, epitomised in a seemingly endless stream of BMWs for the UK and machine tools for China, seems to have turned against her.
The most recent survey of business confidence, also published yesterday, suggests that further declines in exports are likely. German factory orders fell by 6 per cent during November, leaving the annual rate of change at -24 per cent, worse than the consensus expectation among economists,
Dirk Schumacher, an economist with Goldman Sachs Frankfurt, said: "It looks staggering. We had already seen drastic declines in September and October. It is continuing. Industry is in freefall. Although that's not surprising given the bad news from all over the world."
This week has also seen a failed German government debt auction, and the first rise in joblessness in three years, bringing the unemployment rate to 7.6 per cent.
Next week's interest rate decision by the European Central Bank (ECB) will be crucial. The expectation is for a half percentage point cut to 2 per cent, mirroring yesterday's move by the Bank of England.
Many, in the light of the rapidly weakening eurozone economy, would like to see faster progress and for the ECB to undertake "quantitative easing", or printing money, injecting cash directly into the European economy.
In response to the crisis, the German authorities are considering an emergency fund of up to €100bn in state-backed loans for companies facing a credit crunch. It follows a €500bn bailout of the country's banking sector in October. Abandoning previous scepticism about "crass" Keynesianism, the Chancellor Angela Merkel's Christian Democrats and her Social Democratic (SPD) partners have also been trying to agree on a new stimulus package, amounting to €50bn. Mrs Merkel faces elections in September.
The German economy went into recession in the third quarter of last year, as the credit crunch and trade slowdown bit her particularly hard. The failure of one of Germany's largest banks, Hypo Real Estate, also shook confidence.
While the prudent German government and households have ensured that the economy is not highly indebted, Germany has benefited hugely from the demand generated in the highly indebted economies, which is now evaporating. Overall, eurozone GDP contracted by 0.2 per cent quarter-on-quarter, putting the region officially into recession. Eurozone unemployment rose for an eighth successive month in November, it was also revealed yesterday.Reuse content