This morning the optimistic three-day U.S. stock futures rally came to a cessation with word that the characteristically sturdy German economy is grinding to a halt.
A report released today showed that the industrial western European powerhouse did not see the level of economic recovery in the second quarter forecasted by economists.
With the recovery of Europe’s most stable economy, often dubbed the “motor of Europe,” practically stifled, global investors were left unnerved and stocks slumped today as a result.
The entire European Union second quarter growth statistics were discouraging, and the numbers indicate that this has been the worst growth period the Union has seen since late 2009.
Market analyst Matthew Lynn has said the news on Germany is actually quite bad.
Lynn suggests that beyond the U.S. credit downgrade, the debt-ceiling crisis, and fears of a Eurozone sovereign debt crisis, which he finds were all predictable, that today’s news coming out of Germany is truly concerning because no one saw it coming and because it points to a general downgrade in global demand.
Germany’s figures show that GDP stands at a 0.1%, which is substantially less than what most economists had predicted. Economists believed that the GDP growth rate of Germany for the second quarter should have been at 0.5%.
The fear is that stagnation in global demand for German industrial goods signals stagnation on all global fronts, even in emerging markets.
The other fear emerging from the news of Germany’s slow growth arises out of the fact that as Europe’s strongest economy, it will likely have to bail out the rest of the Eurozone if and when crisis hits.
Considering that fears have been mounting about Europe’s other large economies, mainly Spain and Italy, the necessity of a German-backed bailout is likely to come sooner rather than later and may cause a political rift within the Union, an even larger-scale economic crisis, or both.
Thus, two of Europe’s most powerful leaders, German Chancellor Angela Merkel, and France’s President Nicholas Sarkozy, are holding a meeting today to discuss the debt crisis in Europe and measures to contain the looming economic calamity.
Regardless of the outcome of today’s meeting, today’s news is major in terms of the future of the global economy as Lynn argues, “If the world economy is going to run into serious trouble this autumn, then it is Germany that will be pointing the way over the cliff.”