Wall Street dived last night amid concerns about a return to the doldrums for the world economy following figures showing a disastrous plunge in German exports.
The Dow Jones Industrial Average fell more than 320 points – or 2 per cent – to 16,670 at one stage as analysts said Germany needed a “small miracle” to avoid recession and Britain’s Chancellor, George Osborne, warned that a fresh eurozone crisis loomed.
Michael Yoshikami of Destination Wealth Management said of the Dow’s plunge: “Investors are focused on the uncertainty about the economy.”
Germany saw exports sink 5.8 per cent in August – the sharpest drop since early 2009 when the global financial Following a 0.2 per cent slide for Germany’s economy between April and June – which was enough to bring growth in the single-currency bloc to a grinding halt – the latest export collapse dramatically increases the risk of another reverse in the current quarter. That would be enough to fulfil the technical definition of recession, with two consecutive quarters of negative growth.
Germany is suffering from a drop in demand for high-value exports to other European countries as well as China, while businesses are also worried about the impact of the Ukraine crisis and sanctions against Russia.
The latest figures follow a string of disappointing news – including sharp declines in industrial production, factory orders and business confidence – which the ING economist Carsten Brzeski labelled “a summer horror story”.
He said: “The cooling of many export destinations combined with increased uncertainty stemming from the Ukrainian crisis look like the main drivers of the slowdown… The economy seems to need a small miracle in September to avoid a recession in the third quarter.”
Mr Osborne said the German figures came at “a critical moment for the British economy”. He said: “The eurozone risks slipping back into crisis. Britain cannot be immune from that. Indeed, it is already having an impact on our manufacturing and our exports.”
The International Monetary Fund slashed its growth forecasts for Germany earlier this week and has called on the nation to stimulate its economy with debt-funded infrastructure investments, a message the IMF director general, Christine Lagarde, reiterated yesterday as she warned that the eurozone risked falling back into a prolonged recession.
The debt-adverse Germans, however, are determined to plough on without raising borrowing, and the Finance Minister, Wolfgang Schäuble, has played down the risks of a new recession.
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