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Germany recession panic: Economic crisis to wipe out ‘golden decade’

GERMANY is more likely to sink into recession than the UK with the European powerhouse brought its knees by Brexit fears and the impact of the US-China trade war, according to analysts.

Shock data on the country’s shrinking GDP sent tremors through the normally robust Germany economy and triggered a warning from finance minister Peter Altmaier. Mr Altmaier admitted the country found itself in a weak position but insisted recession could be avoided.

He said: “The new figures are a wake-up call and a warning.

“We are in a weak growth phase but not yet in a recession, which we can avoid if we take necessary measures.

“Politicians and businesses must now act together.”

Craig Erlam, Senior Market Analyst at OANDA, said financial conditions meant Germany was more likely to be hit by recession than the UK despite recent predictions.

Germany has been dragged to the brink of recession (Image: GETTY)

He said: “It’s very difficult not to link the two countries as they both contracted in the same quarter and are clearly vulnerable to the Brexit outcome.

“That said, there are very different factors behind their contractions, with Brexit stockpiling in the first quarter being a primary driver in the UK and the trade war and other issues weighing on the German economy.

“For that reason, the risk of recession in the UK in the third quarter is slim while Germany could feasibly slip into recession as the trade war has escalated, rather than improved.”

ING’s chief economist for Germany, Carsten Brzeski, said trade conflicts, global uncertainty and the struggling automotive sector had finally brought the German economy down on its knees.

German finance minister Peter Altmaier issued a recession warning (Image: GETTY)

He said: “In particular, increased uncertainty, rather than direct effects from the trade conflicts, have dented sentiment and hence economic activity.

“The GDP report definitely marks the end of a golden decade for the German economy.”

German manufacturing output has been shrinking this year despite a small gain in GDP in the first quarter.

The country’s wealth relies heavily on exporters that sell a disproportionate amount of goods to China and the US.

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German Chancellor Angela Merkel (Image: GETTY)Germany's wealth is heavily dependent on manufacturing exports (Image: GETTY)

Several large German companies have blamed US-China trade tensions for disappointing results, including software maker SAP, chemicals giant BASF and engineering group Siemens.

Germany is now looking on anxiously to see just how far the trade dispute between Washington and China will go.

The news from Germany was enough to send the US markets into freefall with the Dow Jones Industrial Average nosedive to its biggest drop of the year and shed 800 points.

The yield on the closely watched 10-year Treasury fell so low that, for the first time since 2007, it briefly crossed a threshold that has correctly predicted many past recessions.

The S&P 500 index plummeted nearly 3 percent as the market erased all of its gains from a rally the day before.

Tech stocks and banks led the broad sell-off and retailers came under heavy pressure after iconic department store Macy’s issued a dismal earnings report and cut its full-year forecast.

Investors have been ploughing money into the safety of US government bonds for months amid growing anxiety that weakness in the global economy could sap growth in the US.

Kevin Giddis, head of fixed income capital markets at Raymond James, said: “The bad news for global economies is stacking up much faster than most economists thought, so trying to keep up is exhausting.”

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