Escalating Global Tensions In Germany

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Growth was uneven across eurozone countries, with Germany
euro

Germany could struggle to regain economic momentum as escalating global tensions and a weaker-than-expected recovery in the eurozone hit the nation’s growth outlook, the country’s central bank said Monday.Growth was uneven across eurozone countries, with Germany "robust" and France losing ground ?

“The economic outlook for the German economy became more cloudy in the middle of the year as a result of the unfavourable international news,” the Bundesbank said in its August monthly report.

Data released last week showed Europe’s biggest economy contracted by a surprise 0.2 per cent in the three months ended June compared with the first quarter.

The Frankfurt-based Bundesbank had predicted the second-quarter slowdown but said this would be followed by German economic growth regaining steam in the coming months.

But now it said: “Current indicators cast doubt on the assumption on which the spring forecasts were based, namely that the underlying cyclical trend would strengthen further in the second half of 2014.”

This came in the wake of data released this month showing German factory orders plunging at their fastest rate in nearly three years in June and industrial production rising less than forecast.

The Bundesbank currently expects the German economy to expand by 1.9 per cent this year and 2 per cent in 2015. It is not scheduled to update its current forecasts until the end of the year.

“Nonetheless, sentiment has deteriorated from a high level, which, together with the fact that the trend for domestic demand remains basically upwards, suggests that the economy will not change direction,” the bank said.

Part of the problem for Germany has been the weaker-than-forecast pickup in the eurozone economy, which failed to grow during the second quarter after downbeat performances by Germany as well France and Italy.

“The economic momentum in some member countries of the European currency union is weaker than expected,” the Bundesbank said.

“After stagnating in the second quarter, the eurozone will return to positive economic growth but it probably won’t reach the pace predicted in spring,” the bank wrote.

But it is the standoff between Russia and the West over Ukraine that the Bundesbank fears could do the most damage to both Germany and the eurozone’s economic prospects as the crisis saps business confidence and hits investment.

“The geopolitical tensions in Eastern Europe owing to the Ukraine conflict as well as in other parts of the world are now appearing to weigh more heavily on corporate sentiment,” it said.

However, it said the EU tough’s new sanctions against Moscow and the Kremlin’s retaliation will weigh on German exports.

The Bundesbank’s comments echo concern expressed by economists, industry leaders as well as top government officials including European Central Bank chief Mario Draghi.

Speaking at a press conference earlier this month, Draghi warned about the “heightened geopolitical risks” facing the eurozone economy as a result of international flashpoints in the Middle East and Ukraine.

German business confidence posted a hefty fall in July, declining for the third consecutive month amid growing concerns about the impact on Europe’s biggest economy of global tensions, according to the Munich-based Ifo economic institute survey released last month.

“Geopolitical tensions are taking their toll on the German economy,” said Ifo president Hans-Werner Sinn. “Companies were also less optimistic about future business developments.”
GNA
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