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Europe's economic locomotive is sending alarming signals.
Although the Bundesbank, the German central bank, predicted 1.6% growth in December, its chairman, Jens Weidmann, lowered his forecast last Friday to less than 1%.
And this negative figure is not isolated, but adds to the trend that began the previous year that worries one of the world's leading economies.
In the last quarter of 2018, GDP (Gross domestic product) German was contracted by 0.2% and did not regain growth in the first three months of 2019.
Data that is not serious, but that surprises and worries in the case of Germany.
As a general rule, an economy goes into recession after two consecutive quarters of contraction. This means that the largest economy in Europe has avoided the slightest fall in this state.
Fall of industrial production
One of the reasons for this cooling is to look for it in the fall of German industrial production in recent months and in the collapse of industrial orders, as can be seen in this chart.
In the month of February, the decline in exports was 1.3% compared with the previous month, according to data from the Federal Statistical Office, the highest of last year.
Although exports have increased 3.9% in the last twelve months, the short-term outlook does not look positive.
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The problems that come from China
A study published in early April showed that orders and exports "are falling at an unprecedented rate since the last global financial crisis".
The Chinese demand reduction, one of Germany's leading customers, This is one of the key factors of this trend.
Why is the German economy important?
The round trip to Germany, whose economic activity represents 29% of the euro area as a whole, depends to a large extent on progress in the rest of Europe.
And it also has a direct impact on the rest of the world. Germany is the world's fourth largest economy, surpbaded only by the United States, China and Japan, and the third largest exporter in the world, after China and the United States.
With Latin America, economic ties are also intense.
Berlin is the fourth largest exporter of some of the major economies of Latin America like Argentina, Mexico, Colombia or Chile. And the third of the region as a whole, according to the International Monetary Fund.
Positive data
However, not all German economic indicators are negative. The unemployment rate in the country, of 3.1%, remains one of the lowest in the world and continued to decline even during this period when GDP performance was weak.
Among the more developed economies, only the Czech Republic, Iceland and Japan have lower unemployment rates.
The percentage of the working-age population that is working has also increased by 0.2% in each of the last two quarters of 2018.
One can find the explanation of this apparent contradiction between different economic indicators in that, although industrial production is going through a delicate moment, services and construction live a moment of expansion and a strong domestic market is maintained.
Situation in the euro area
On the other hand, the drag on German growth is not isolated from the rest of the euro zone, which has also suffered in recent months.
Although some countries – such as Spain and the major economies of the euro area – have continued to grow at a steady pace, others, such as Italy, are in recession.
In fact the Italian economy did not regain the size it had reached before the financial crisis of ten years ago.
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And unlike Germany, the unemployment situation in the rest of the European countries varies considerably from one country to another. In the euro area as a whole, the average is 7.8%, which is relatively high.
In countries such as Italy, Spain and Greece, double-digit rates are maintained, which in the case of Greece reaches 18%.
Rates in the United States and Brexit
The reasons for the economic problems of Germany and the euro area as a whole are diverse.
On the one hand, recovery from the financial crisis has never been complete.
Last year, the region was hit by the bad situation of world trade. In addition to the mentioned cooling of the Chinese economy, tariffs that the President of the United States, Donald Trumpimposed on imports of steel and aluminum also had an impact.
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The possibility that these rights also apply to the importation of automobiles would have an even more damaging impact, particularly for the German economy.
On the other hand, the uncertainty derived from the lack of agreement on Brexit was another factor that German companies mention in surveys when they are questioned about the reasons for this poor economic progress.
Internal factors
The recent extension of the negotiation period between the United Kingdom and the European Union has had a positive impact on the morale of German investors.
The ZEW indicator, developed by the Leibniz Center for European Economic Research in Mannheim and measuring the atmosphere of the economy, reached 3.1 in April and recorded positive numbers for the first time since March 2018.
But in parallel with the vagaries of the international context, the German economy has also been exposed to internal factors such as the implementation of new tests emissions, that this had an impact on car production last year.
It also affected the drought, which forced to restrict the transit of goods along the Rhine, important commercial artery of the German industry.
The (few) options of the ECB
Faced with this situation, one of the key questions is what the European Central Bank can do to encourage growth in Germany and Europe.
The options that are available to you are limited and the use of economic policy to counteract the slowdown in the economy can be complicated.
Interest rates of the European Central Bank are already at their lowest where they can be. The main rate is zero, the one applied to the loan facility is 0.25% and the deposit rate is -0.40%.
The European Central Bank has put an end to its "quantitative expansion" policy of buying financial badets with newly created currency.
It is possible to go back to this type of measurement, but it involves complications. For certain types of badets, the ECB is getting closer to the maximum amount it wants to have without distorting the market too much.
From the political point of view, this measure would be difficult, especially in Germany, where it has always been viewed with suspicion.
"Earn money", as this program is sometimes called, can lead to an increase of l & # 39; inflation and arouse Germany's fears about this phenomenon that hit the country hard during the first half of the twentieth century.
What can the German government do?
The German government has other tools to revive the economy, such as reducing taxes or increasing public investment.
Many economists argue that Germany has the opportunity to choose this path. German government spends less than it collects taxesbut he is reluctant to use his finances to stimulate the economy.
The latest recommendations of the European Commission indicate that it is still necessary to apply "cautious" policies guaranteeing the sustainability of the accounts of member governments.
Some critics, on the other hand, believe that the European Union's accounting rules for euro area governments are too restrictive.
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