Germany's export-dependent economy is now in an industrial recession, or one mainly pummeling its powerful industrial sector. On the other hand, Germany's primary and service sectors are growing, albeit slightly.
Germany's GDP forecast for the third quarter was revised downward to just 0.5% from the initial 0.8% projected in the spring in a joint forecast among some of Germany's leading think-tanks. The joint forecast was made by the Ifo Institute for Economic Research (Ifo), IfW (Kiel Institute), IWH (Halle Institute for Economic Research), RWI Essen (Rheinisch-Westfälisches Institut) and the German Institute for Economic Research (DIW Berlin).
It said the reasons for the industrial recession include plunging worldwide demand for capital goods that are battering Germany's export-reliant economy, political uncertainty and structural changes in the automotive industry partly due to tougher emission standards.
"German industry is in recession, and this is now also impacting the service providers catering to those companies," said Claus Michelsen, head of forecasting and economic policy at the DIW Berlin.
"The fact that the economy is expanding at all is due primarily to the continuing positive spending mood of private households, which is being buoyed by good wage agreements, tax breaks, and the expansion of government transfers."
Other German economic research institutes have also reduced their Q3 GDP growth forecasts to 1.1% from the 1.8% predicted in the spring.
"Risks arising from an escalation of the trade war are particularly high," said Michelsen. "But a disorderly Brexit would also have costs: it would cause German gross domestic product, taken by itself, to be 0.4 percent lower in the coming year than if there was an orderly exit."
The manufacturing subsector posted the weakest performance since the Great Recession of 2008 in September. Disheartening manufacturing figures from IHS Markit's Purchasing Managers' Index (PMI) indicate the economic crisis in the overarching industrial sector is starting to weaken other sectors of Europe's largest economy.
The manufacturing PMI accounts for about a fifth of the German economy. It plummeted to 41.7 in September from 43.5 in August. This was the lowest reading since 2009.
"The downward trend in new orders, which fell the most in more than 10 years, is a particular worry, and continues to drive cutbacks in factory output, employment, and prices," said IHS Markit economist Phil Smith.
