Following the economy in Germany recently, I’ve felt like I’ve been riding a roller coaster. Unfortunately, the ride seems to have taken on a downward trend as early data from the fourth quarter has started to raise concerns. Early industrial data shows that private sector growth slowed to its weakest growth in 18 months. Today, we’re going to take a close look at the data that’s been released so far, discuss what this means for the Eurozone as a whole, and of course take a look at what we can expect from Germany and the rest of the Eurozone throughout the year 2015.
The Data That Has Economists Concerned
Over the past month or so, economists have been talking about all the good things Germany has had going for them. With oil prices on a steep decline, lower energy costs mean money for other sectors. Also, with a weakening Euro, economists expected companies selling to areas outside of the Eurozone would get a decent push. Unfortunately, neither of these expectations proved to come true. Unfortunately as construction and energy production fell, so too did the industrial output we saw from Germany.
While we did expect to see a minor drop in exports, seasonally adjusted expert figures dropped by 2.1% in November; a much larger fall than what was previously expected. Also, when we look at industrial output figures as a whole, we saw a drop of 0.1%; an private sector growth slowed to its weakest growth in 18 months growth in the final three months of the year was most likely an expectation that won’t come to fruition.
As this data was released, Markit Economics released PMI data that wasn’t favorable either. They announced that a Purchasing Managers Index for manufacturing and services fell from 51.7 in November to 51.4 in December; a far cry from the increase economists expected to 52.3.
What This Means for the Eurozone as a Whole
I’ve said it time and time again, and I’m happy to repeat myself; when the economic conditions in Germany weaken, we can expect to see a domino effect throughout the Eurozone. The bottom line is that while Germany doesn’t account for the movement in the entire Eurozone, it is the currency zone’s largest economy. Therefore, if Germany isn’t doing well, it provides a clear indication that the rest of the data seen around the Eurozone will follow. With most major economies in the Eurozone struggling, the poor data out of Germany could be the devastating blow that forces the ECB to start taking action in an effort to stimulate the economy.
