Deutschland Down But Not Out
When the global economy came to blows in 2008, it was Germany that took Europe under its wing. Since then it’s been a powerhouse of growth, but now it’s nothing but a sluggard. Armchair critics are calling this the end of a “golden era” for the Germans, but investors see more than one possible ending here.
Not for the first time, market players have seen the growth of Germany’s gross domestic product (GDP) shrink into negative territory. Economists have all manner of trade metrics and measures to look at when trying to predict the future, but gross domestic product is a country’s bottom-line. It cuts a long story short!
Throw Brexit, the Sino-US trade dispute, and the country’s flagging auto industry all into one cauldron, and investors, stand back! The gross domestic picture doesn’t look rosy, and it’s been a two-year journey leading to this point. Societe Generale strategist Kit Juckes called this a “perfect storm” for Germany, where a recent business survey from the country’s Ifo Institute suggests “and end to the recession is not in sight.” Oh, goody! With Germany reeling, it’s everyone for themselves again in Europe!
The man desperately trying to hold the Eurozone together is European Central Bank President, Mario Draghi. While he may be reluctant to cut rates below their historic lows to jumpstart Germany, he may also have no choice. Germany loathes debt. If the government in Berlin is to spearhead an injection of cash and confidence, interest rates on loans for new projects will have to be as close to zero as possible.
The world’s affairs are moving at breakneck speed. It might not be long before investors send a stock-selling signal to German Chancellor Angela Merkel. Sometimes, you’ve just gotta bite the bullet!
