Germany seems to be the first country in Europe that has shown signs of suffering from the trade wars going on between the United States and China. They could fall into a recession from a decline in trades according to economists at the investment bank Credit Suisse.
At one time, Germany was a major performer in the economy but as of late, they are seriously falling behind.
Year after year, Germany grew at 0.4% then from April to June, they were weaker than they had been in six years. At 0.1% over each quarter has made it the only major European economy to shrink significantly.
Another blow to Germany, the Word Trade Organization ruled the airplane manufacturer, Airbus, received illegal subsidies over the past 15 years. This has caused the U.S to hit European goods with tariffs up to 25%.
This will cause German goods, such as coffee and wine, to become very expensive causing more problems for the ailing economy.
Also, before the ruling, things were not looking good for the country. German GDP contracted in the second quarter for a second time in one year and surveys are showing a rising risk for even more declines in accordance with the London-based investment bank Nomura.
Reports show that what is going on in German, will not affect the rest of Europe, according to Credit Suisse. Germany has an enormous current account surplus that is expected to reach $276 billion this year which the largest in the world.
This was due to a combination of booming exports but weak domestic demand. This has lead to lower imports but economists do not believe that Germany's spending is anything new.
Easing by the European Central Bank should cushion economies elsewhere in the region. The bank's lower rates “resumption of asset purchases and new long-term refinancing should be good for domestic demand outside of Germany”, according to Credit Suisse economists.
In Italy, due to a shift in the policy along with constructive political news has led to a major fall in the government bond yields. This has further tightened the financial growth over the past year, contributing to Italy's slowdown.
Credit Suisse believes there are two ways to fix Germany's problem. The first, end the trade war between the United States and China and secondly, a German fiscal stimulus.
Even though a solution for the trade war is out of Germany's hands, it could look for fiscal support. Economists believe that even though Germany has “fiscal firepower” to support their economy, it's unlikely to happen due to its achieving a balanced budget.