Fears of a German recession are rising after a key economic indicator recorded its second-lowest readout in 6 years

  • Fears of a German recession are rising after Europe’s biggest economy posted its second-lowest manufacturing readout in six years.
  • New orders and new export orders remained at “exceptionally low levels,” one analyst said.
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Fears of a German recession are rising after Europe’s biggest economy posted its second-lowest manufacturing readout in six years.

New European PMI (Purchasing Managers Index) data, published on Thursday, indicated growth looked fairly “feeble” across the continent.

The data was particularly bleak for Germany. “German Composite PMI picked up from 50.9 in July to 51.4,” Melanie Debono, Europe Economist at Capital Economics, said in a research note. “However, the reading for Germany was still its second-lowest since June 2013.”

PMI -a monthly survey – measures the sentiment of managers of private companies, including their evaluation of business conditions and the economy.

“Based on its historical relationship with GDP growth, the German PMI suggests that, after contracting in the second quarter, the economy may enter a technical recession in the third quarter,” Debono said.

“While the services sector appears to be holding up well, the manufacturing recession is dragging on,” she added. “The new orders and new exports orders components of the German Manufacturing PMI remained at exceptionally low levels.”

The latest data comes at a difficult time for the German economy, and raises the likelihood of a recession. Germany’s central bank warned of an increased risk this week.

“Economic activity could also decline slightly in the current quarter,” Bundesbank said on Monday. “While domestic consumption continues to isolate the economy, the jobs market is already showing signs of weakness and confidence in the services sector is also dropping.”

Germany recently launched a 30-year, zero-interest bond in the hope of raising cash. However, the bond auction raised 824 million euros – well short of its target of 2 billion euros ($2.2 billion).

The wider eurozone may also be in trouble. “Growth in the single-currency area has remained lackluster,” Debono said, adding the slowdown could spur central banks to stimulate their economies.

The European Central Bank is likely to cut its deposit rate by 10 basis points in September, and announce a fresh round of quantitative easing in October, Debono said. ‘The chance that it will announce both measures in September has risen.”