Higher risk of recession in Germany: IMK institute

BERLIN (Reuters) - There is an almost 60% chance that the German economy could fall into recession, according to a monthly index gauging the health of Europe’s largest economy published on Thursday by the Macroeconomic Policy Institute (IMK).

FILE PHOTO: The skyline with its financial district is photographed early evening in Frankfurt, Germany, October 8, 2018. REUTERS/Kai Pfaffenbach//File Photo

The forward-looking index by the private economic research body put the risk of recession at 59.4%, up from 43% in August. This is its highest recession risk reading since the winter months of 2012/2013.

The German economy has weakened as its export-dependent manufacturing sector languishes in recession due to trade conflicts and uncertainty linked to Britain’s planned departure from the European Union which have stifled demand.

The government has been facing calls to inject a stimulus package into the economy, which shrank in the second quarter.

There are fears the recession in manufacturing could spread to other sectors, which would hurt a so far robust labor market that has supported consumption and provided impetus for the economy.

Related Coverage

“The hope that domestic demand could save Germany from a recession is fading increasingly,” said IMK’s Sebastian Dullien. “This increases the pressure on the European Central Bank to further loosen monetary policy.”

With economic growth slowing in the euro zone, the ECB has all but promised to announce more stimulus after its meeting on Thursday.

The IMK index, which measures the risk of a recession over a three-month period, factored in weak economic data such as falling industrial orders and industrial production as well as a shrinking number of open positions and a gloomy business sentiment.

It also took into account risks like the possibility of a no-deal Brexit and weakness in Germany’s automotive sector hit by stricter emission rules and a costly shift to electric cars.

The Kiel Institute for World Economy (IfW) said on Wednesday it expected the economy to shrink by 0.3% in the third quarter, which would amount to a technical recession.

Reporting by Joseph Nasr; Editing by Andrew Cawthorne