The country’s biggest bank made the shock assessment in a new report, highlighting recent trends painting a damaging economic picture. Deutsche Bank expects the Eurozone’s largest economy, valued at £3.1trillion, to contract further during this quarter, with new business surveys pointing towards souring moods at companies and worsening expectations for new orders. Economists, including Sebastian Becker, wrote in the report: “The start of the German economy into 2019 has been a major disappointment so far.
“The development of several key cyclical indicators is telling us that the German economy is drifting towards recession right now.”
Deutsche Bank economists have not yet refined their one percent forecast growth for this year as they await fourth quarter data to be released by the German statistics office on February 22.
Poor results would put Germany into a state of recession after its economy shrank by 0.2 percent in the third quarter, largely due to a continued slump in its lucrative car sector.
Deutsche Bank is expecting the same 0.2 percent contraction to start off 2019.
The bank added in its note: “Given much weaker than expected January business surveys and in particular the slump in their more forward looking components we are now expecting the German economy to contract again in Q1 2019.
“Global economic policy uncertainty jumped in December marking a new all-time high.”
“Most of the global trouble spots (Brexit, Chinese growth concerns) have taken a turn for the worse in January, making it very hard to assume a fundamental improvement during the reminder of Q1.”
In its first assessment last month, the German statistics office said the country swerved recession with a “slight” increase in gross domestic product.
But last week, the German government sparked fears of financial turmoil by reducing its GDP forecast for this year from 1.8 percent at the end of 2018 to just one percent.
This was primarily due to Brexit concerns and recent negative developments in international trade wars.
The latest warning for Germany’s economy comes just days after Bundesbank President Jens Weidmann warned economic weakness flowed into 2019 and will result in significantly lower growth than initially predicted.
Fears Germany’s economy was hurtling towards recession increased on Wednesday when data showed the economy suffered a further fall in manufacturing orders.
German factory orders plunged a further 1.6 percent, despite a forecast predicting that orders would actually grow in December.
The data showed that this was likely due to orders from outside the bloc falling by 5.5 percent while domestic orders slipped by 0.6 per cent. This fuelled further fears that the German economy is heading towards a recession
Further cause for concern came as Germany’s construction PMI for January revealed activity growth had softened, slipping to 50.7 from 53.3.
But Phil Smith, principal economist at IHS Markit, attempted to water down fears Germany is heading towards a recession.
He said: “The fact that growth in total industry activity slowed down more than new orders, which remained comparatively robust, suggests that it wasn’t necessarily a demand-driven slowdown and that severe bad weather probably did cause some disruption to actual work on the ground during the opening month of the year.”
The latest damaging German financial data is a further blow to the eurozone after investor confidence in the single currency plummeted to its lowest level in more than four years.
The Sentix Economic Index, which surveyed 1,004 investors between January 31 and February 2, fell from -1.5 points last month to -3.7 points.
This is the lowest since November 2014 and the sixth successive month of decline, with the Index having being as high as +12 in September.