Trade War Between China & US Hits Germany

by Wadsam | August 7, 2019 6:22 pm

There are fears that Germany could be dragged into a recession due to the trade war between the US and China, after data showed that production in Europe’s biggest manufacturing powerhouse dropped in June.

Germany’s industrial output dropped by more than 5% compared to 2018. Economics at Dutch bank ING stated that “We should prepare for contraction in the German economy.”

Germany’s economy relies on exports to China and the United States, who are in a bitter trade war with one another. A fear of Brexit is also hurting Germany’s economy.  

Last month, the International Monetary Fund (IMF) also cut its global growth forecast for 2019 and 2020. If US-China dispute escalates, global growth in 2020 would be reduced by half a percentage point.

Central banks in America, India, Thailand, and New Zealand have all cut their interest rates so they do not get affected by the trade war. The European Central bank has also hinted in unleashing more stimulus.

President Trump escalated the trade war by stating that the US will tax every Chinese export starting in September. He also labelled China a “currency manipulator” after Beijing allowed the yuan to weaken. Fears of a currency war might trigger inflation and lowering of asset prices. Chinse President Xi Jinping has stated that he won’t give into US demands and change their industrial policies, so the trade war will most likely escalate even further.

Commerzbank stated that they have doubled the money set aside in the second quarter to account for loans that won’t be repaid because of a “noticeable worsening of the macroeconomic situation” and the “increasingly uncertain geopolitical situation.”

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