German Economy Goes Into the Dump

Germany, the largest economy in Europe and the fourth largest in the world, is in deep trouble, and it has grown worse recently. The country’s manufacturing sector continues to deteriorate, and now its services sector has rapidly weakened.

According to research firm Markit, the flash PMI for October showed the “downturn in (the) German economy continues as employment falls for (the) first time in six years.” The country’s Flash Germany Manufacturing Purchasing Managers’ Index was at 41.9. Any number below 50 is a contraction. The Flash Germany Services PMI Activity Index was at 51.2, a 37-month low.

Phil Smith, principal economist at IHS Markit commented, “Hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the October flash PMI numbers, which show business activity in the eurozone’s largest economy contracting further and underlying demand continuing to soften.”

Given the ratio of German gross domestic product to that of the eurozone, it is hard to imagine that the region is not at real risk of a recession, perhaps starting as early as the current quarter. Many economists believe that the turmoil of Brexit will only make matters worse.

At the same time, both the World Bank and International Monetary Fund have downgraded growth prospects for most of the world, and very importantly the United States, China and Japan, the world’s three largest economies. The big economic engines are sputtering all over the world.

The Markit report is the latest in what has become a lengthened line of bad economic news. A look around the world shows that most prospects are not much better.