Germany narrowly escapes recession as IMF warns of risks facing global recovery

IMF managing director Christine Lagarde warned of ‘clear risks’ at the G20 summit in Brisbane

IMF Managing Director Christine Lagarde (Getty Images)

Europe's biggest economy avoided recession by the skin of its teeth as the head of the International Monetary Fund warned of “clear risks” to the recovery at the G20 summit in Brisbane.

Germany — the powerhouse of the single-currency bloc — managed anaemic growth of just 0.1 per cent between July and September, following a shock 0.1 per cent decline in the second quarter.

The sluggish performance trails the slightly stronger 0.2 per cent growth seen by the wider eurozone, itself well behind the 0.7 per cent growth registered by the UK during the same period.

France also managed a 0.3 per cent advance, although Italy — whose economy has not grown since 2011 — slipped back into outright recession. Revised figures also showed Greece emerging from a five-year recession at the start of this year.

The European gloom — as well as risks from a slowdown in fast-growing nations elsewhere like China — highlighted the fragility of the global economy’s attempt to bounce back from the biggest financial crisis in a century.

IMF managing director Christine Lagarde told the BBC there were “clear risks” with “areas of the world at risk of lapsing back into negative territory”.

She also underlined lingering high unemployment since the crisis, warning the recovery had been “fragile and insufficient to create the jobs that are needed”.

ABN Amro’s head of research, Nick Kounis, said: “The eurozone economy is still growing, albeit at a snail’s pace, despite all the doom mongering by the IMF and others. A slow recovery rather than a third recession looks to be on the cards. Having said that, this is not an outlook that policymakers could possibly be satisfied with.”

Bank of England Governor Mark Carney warned this week that the “spectre of economic stagnation” was haunting Europe.

The malaise has prompted the European Central Bank to slash interests to a record low of just 0.05 per cent and launch its own Funding for Lending-style scheme to boost credit.

ECB president Mario Draghi has also begun buying up bonds backed by pools of mortgages and commercial property debt to boost credit conditions.

But the central bank has so far stopped short of buying up government debt, which many experts say is needed to get the eurozone moving and boost inflation, which has fallen to just 0.4 per cent. This is well below the ECB’s target of close to 2 per cent.

David Page, senior economist at AXA Investment Managers, said: “We currently think the eurozone will perform no worse next year than this year, although there are clearly downside risks. If the eurozone underperforms, it will have an impact on UK business.”