(CN) — The German economy is slowing down — and possibly entering a recession — and that's giving rise to calls for the economic locomotive of Europe to start spending more to ward off a crisis.
For the past year, the global economy has been perturbed by the trade war between the United States and China, political instability, rising regional conflict and poor economic data.
All of this has many in Europe concerned about a new crisis — one that could be deeply traumatic for the eurozone, the area that uses the euro as official currency.
This week Germany's central bank, the Bundesbank, said it appeared Germany's economy has contracted for a second consecutive quarter due to a continuing fall in exports, which are the engine for Germany's economy. If so, this would mean Germany has entered a “technical recession.” Growth forecasts are better for 2020.
The health of Germany's export-based economy depends heavily on the state of world trade — so when it's going badly, Germany too suffers. As economists describe it, when world trade sneezes, Germany catches a cold. In other words, demand around the world is falling for German cars and car parts, machinery and drugs.
Germany's industrial production this year has fallen by about 5% and its exports by 8%. More businesses are turning to part-time work and discussion of recession is getting louder.
The Bundesbank warned that the slowdown in exports could begin to hurt Germany's economy more widely, though the central bank said it did not expect a long-term recession.
Still, there is a sense among many economists that it is only a matter of time before Europe enters troubled economic waters — again. Europe was hit hard by the 2008-09 financial crisis and is still recovering from that shock.
To ward off the threat of recession, the European Central Bank said in September it was cutting interest rates and maintaining a policy of buying government bonds. In other words, it will keep trying to keep the EU economy primed with an economic strategy known as quantitative easing.
In the meantime, many are urging Germany to overhaul its economic model — for its own good and for the good of the EU.
“The German economy for years was a role model for other nations and pulled them along,” the Süddeutsche Zeitung newspaper reported this week. “But in 2019 the country suddenly finds itself as the brake again.”
First of all, Germany is being pressed to open up the purse strings and invest.
Germany enjoys a balanced budget and surpluses, in large part because of government commitments not to rack up debt, limiting federal structural deficit to 0.35% of GDP and enacting a policy of balancing the budget, the schwarze Null, or “black zero,” policy. The German public and, according to a recent survey, a majority of the country's economic experts support Germany's tight fiscal policy.
But advocates for a looser fiscal policy are growing. They say Germany needs to fuel demand by spending more, and that doing so could help the struggling economies of southern Europe.
Up to now, German policymakers have argued that spending more would simply make an already robust low-unemployment economy go into overdrive and overheat. They say there are perils in abandoning fiscal discipline.