German economic activity unexpectedly shrinks to inflation

Germany’s economy is shrinking for the first time this year as inflation squeezes businesses and households and the war in Ukraine shatters confidence.

S&P Global’s measure of private sector activity fell to its lowest level in 25 months in July, falling more than economists had expected and falling below the line that separates expansion from contraction.

Future expectations turned negative for the first time since the pandemic began as domestic and external demand fell. The figures reinforce predictions that Europe’s largest economy will slip into recession in the second half of 2022.

“After a spurt to growth from the earlier easing of virus-related restrictions, a clash of headwinds in July caused the German economy to contract,” said Paul Smith, economist at S&P Global.

“The fall in output was broad-based, with the downturn in manufacturing deepening and service sector activity falling into contraction territory for the first time since December,” he said.

The euro fell 0.9 percent against the dollar to $1.0141, its lowest since Tuesday, while German two-year yields, which are among the most sensitive to monetary policy changes, fell 18 basis points to 0.50 percent, as money markets curtailed bets on rate hikes.

Germany is among the economies most vulnerable to Russia’s invasion of its neighbor due to its over-reliance on the Kremlin for natural gas supplies, which have been limited in recent months. Businesses in the service industry, meanwhile, are being held back by labor shortages and customers whose finances are increasingly stretched by inflation.

French activity faced similar problems, although activity there also declined more than expected, it continued to increase. Still, the data raises concerns that France is also at risk of recession, S&P Global said.

https://www.independent.ie/business/world/german-economic-activity-unexpectedly-shrinks-on-inflation-41859743.html German economic activity unexpectedly shrinks to inflation

Fry Electronics Team

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