News / Economy

    Faltering Germany Casts Cloud Over Fragile Eurozone

    Traders are seen at their desks in front of the DAX board at the Frankfurt stock exchange, Germany, July 10, 2014.
    Traders are seen at their desks in front of the DAX board at the Frankfurt stock exchange, Germany, July 10, 2014.
    Reuters

    Germany's faltering economy has cast further doubt over the eurozone's prospects for recovery this year, with no other big country strong enough to pick up the slack.

    Since late last year, the 18 countries using the euro have been climbing steadily out of a two-year recession. But just as the bloc appeared to be turning the corner, its star economy, Germany, has fumbled the ball.

    To make matters worse, other big states, including the eurozone's second-largest economy France, show little prospect of a strong rebound.

    French industrial production plunged unexpectedly in May, and inflation fell to its lowest level since the financial crisis in 2009. Adding to the gloom, Italy's factories also saw a 1.2 percent drop in output in May, the steepest fall in more than a year-and-a-half.

    And while Spain is expecting growth to accelerate to near 2 percent in 2015, one in four of Spain's workforce are out of work after the collapse of a property price bubble.

    “Europe is getting more and more Japanese,” said Carsten Brzeski, an economist with ING, echoing concerns of others that the region faces permanent slow growth and no price inflation.

    “The eurozone is flat lining. I don't see substantial growth for another year.”

    Choking exports

    At the start of 2014, the picture looked different.

    Throughout the first three months, the German economy grew at its strongest rate in three years - 0.8 percent - thanks in part to mild weather lifting construction work.

    That made up for stagnation or slowdown in France, Italy and the Netherlands and prevented the bloc's overall recovery from stalling.

    While Britain, outside the bloc, underlined its robust recovery with the strongest quarterly growth in four years - to end June - the mood is turning in continental Europe's industrial powerhouse. German exports, imports, industrial orders, output and retail sales all fell in May compared with a month earlier.

    On Thursday, Germany's economy ministry cautioned about the impact of the crisis in Ukraine on confidence in Germany as it painted a bleak picture of the second quarter.

    “After a growth-strong start to the year, the development of the German economy in the second quarter is subdued,” the report said.

    Across the whole eurozone, analysts expect growth in the second quarter at around 0.2 percent, quarter on quarter, as seen in the three months to March.

    In the boardrooms of Germany's Mittelstand, the small and medium-sized companies that employ about 70 percent of its workforce, the sense of nervousness is palpable.

    “The mood has deteriorated after the strong start to the year,” Mario Ohoven, head of the BVMW Mittelstand association, told Reuters. He blamed the 'smoldering' eurozone crisis and Ukraine for crimping companies' export forecasts.

    Martin Wansleben, Managing Director of the German Chamber of Industry and Commerce, made a similar assessment.

    “The ongoing Ukraine-Russia crisis, the conflicts in the Middle East and the ropy economic activity in emerging markets are clearly choking the export business,” he said.

    Both expect an improvement later in the year, as do economists, but few believe Germany's economic muscle can this time pull its neighbors from the trough.

    “The numbers are bumpy,” said Jonathan Loynes, Chief European Economist at Capital Economics. “I think the economy is growing, but ... not strongly enough to sustain a strong economic recovery across the eurozone as a whole.”

    Stubborn

    There is a wider debate across Europe about whether to shift the policy focus towards spending to lift the economy and away from spending cuts and austerity.

    Italy's Prime Minister Matteo Renzi is leading a drive for greater flexibility in the way European budget rules are applied, whereas Germany wants to keep the focus on thrift.

    But for some, that debate glosses over a deeper problem that holds back the eurozone economy - a reluctance to change.

    Germany, they say, is stubbornly wedded to its model of manufacturing, while others, including France, are resisting social and economic reforms needed to boost industry.

    “Germany should be the locomotive of Europe,” said Guntram Wolff of Brussels-based think-tank Bruegel.

    “But the feeling in Germany is that we want to rely on the strength of the last 10 years in manufacturing, and we don't accept change in the economy. The services sector, for example, is still quite regulated.”

    In neighboring France, the government has struggled to reform its social welfare system and labor model.

    President Francois Hollande is pinning his recovery hopes on plans for nearly 40 billion euros in corporate tax breaks to be phased in over the coming three years.

    But the announcement has done little so far to lift business confidence, which has ebbed ever lower in France. The country's central bank estimates growth of only 0.2 percent in the second quarter after stalling in the first three months.

    Weak business confidence in turn weighs on company investment, which the government is counting on to underpin growth even though consumer spending, currently weak amidst high unemployment, is traditionally the main driver.

    For captains of industry, such as Christophe de Margerie, the chief executive of French oil major Total, this reluctance to reform is one of the chief problems.

    “Why doesn't it [the economy] take off as fast as we would like?” he recently told reporters.

    “Probably first of all because we were hit by the crisis later than others so there is a delayed impact, but also because our welfare system ... sometimes hides how tough times are.”

    You May Like

    Video Democrats Clinton, Kaine Offer 'Very Different Vision' Than Trump

    In a jab at Trump, Clinton says her team wants to 'build bridges, not walls'; Obama Hails Kaine's record; Trump calls Kaine a 'job-killer'

    Turkey Wants Pakistan to Close Down institutions, Businesses Linked to Gulen

    Thousands of Pakistani students are enrolled in Gulen's commercial network of around two dozen institutions operating in Pakistan for over two decades

    AU Passport A Work in Progress

    Who will get the passport and what the benefits are still need to be worked out

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movementi
    X
    July 22, 2016 11:49 AM
    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movement

    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video Scientists in Poland Race to Save Honeybees

    Honeybees are in danger worldwide. Causes of what's known as colony collapse disorder range from pesticides and loss of habitat to infections. But scientists in Poland say they are on track to finding a cure for one of the diseases. VOA’s George Putic reports.
    Video

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.
    Video

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.
    Video

    Video Poor Residents in Cleveland Not Feeling High Hopes of Republican Convention

    With the Republican Party's National Convention underway in Cleveland, Ohio, delegates and visitors are gathered in the host city's downtown - waiting to hear from the party's presidential candidate, Donald Trump. But a few kilometers from the convention's venue, Cleveland's poorest residents are not convinced Trump or his policies will make a difference in their lives. VOA's Ramon Taylor spoke with some of these residents as well as some of the Republican delegates and filed this report.
    Video

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.
    Video

    Video With Yosemite as Backdrop, Obama Praises National Parks

    Last month, President Barack Obama and his family visited some of the most beautiful national parks in the U.S. Using the majestic backdrop of a towering waterfall in California's Yosemite National Park, Obama praised the national park system which celebrates its 100th anniversary this year. He talked about the importance of America’s “national treasures” and the need to protect them from climate change and other threats. VOA’s Julie Taboh reports.
    Video

    Video Counter-Islamic State Coalition Plots Next Steps

    As momentum shifts against Islamic State in Iraq, discussions are taking place about the next steps for driving the terrorist group from its final strongholds. Secretary of State John Kerry is hosting a counter-IS meeting at the State Department, a day after defense ministers from more than 30 countries reviewed and agreed upon a course of action. VOA Pentagon correspondent Carla Babb reports.
    Video

    Video Russia's Participation at Brazil Olympic Games Still In Question

    The International Olympic Committee has delayed a decision on whether to ban all Russian teams from competing in next month's Olympic Games in Brazil over allegations of an elaborate doping scheme. The World Anti-Doping Agency recently released an independent report alleging widespread doping by Russian athletes at the 2014 Winter Olympics in Sochi. So far, only Russian track and field athletes have been barred from the Summer Games in Brazil. VOA's Zlatica Hoke has more.
    Video

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.
    Video

    Video Millennials Could Determine Who Wins Race to White House

    With only four months to go until Americans elect a new president, one group of voters is getting a lot more attention these days: those ages 18 to 35, a generation known as millennials. It’s a demographic that some analysts say could have the power to decide the 2016 election. But a lot depends on whether they actually turn out to vote. VOA’s Alexa Lamanna reports.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9079
    JPY
    USD
    106.10
    GBP
    USD
    0.7636
    CAD
    USD
    1.3106
    INR
    USD
    67.076

    Rates may not be current.