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Germany could be on the verge of recession as the coronavirus outbreak exacerbates the nation’s industrial slump, according to Deutsche Bank (DE:DBKGn).
The lender now expects a slight contraction in the fourth quarter, it said in a report on Wednesday, and cast doubt on the prospect of any rebound at the start of 2020. A downturn in the euro zone‘s biggest economy would be another blow to the bloc as it struggles to escape a manufacturing recession that’s hit broader growth, and could stoke further calls for fiscal stimulus.
German GDP figures are due to be published on Friday. While the median prediction is for 0.1% growth, a number of banks are forecasting a contraction.
“The coronavirus presents a risk to the global recovery as it dampens hopes for a revival in the Chinese economy,” said Stefan Schneider, an economist at Deutsche Bank. “A technical recession in the winter half-year therefore seems increasingly likely.”
He estimates the virus will shave about 0.2 percentage point off German GDP in the three months through March. Given the current consensus for the quarter is 0.2% expansion, that puts the economy close to a second straight contraction.
There are mounting signs that the disease outbreak could do severe economic damage, at least in the near term. OPEC has slashed forecasts for global oil demand, and European Central Bank Chief Economist Philip Lane said on Tuesday that there could be “a pretty serious short-term hit” to the economy.
The euro zone’s woes were also illustrated on Wednesday in data showing the biggest drop in industrial output in almost four years. The ECB continues to pump monetary stimulus into the financial system, but President Christine Lagarde this week repeated her call for governments to do more.
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