Tags: Germany | Europe | Recession | Risk

CNNMoney: Germany is Europe's Next Recession Victim

By Michael Kling   |   Wednesday, 02 May 2012 10:45 AM

Germany, with the largest EU economy and the fourth largest in the world, is next in line for a recession, CNNMoney reports.

Already, 12 European countries are officially in recession. Spain and the United Kingdom were the latest dominoes to fall last week, both announcing two consecutive quarters of economic contraction, the official definition of recession.

The country, long seen as an economic safe haven in the troubled eurozone, may already be in recession. It's just that the data hasn't yet shown it.

The German economy declined 0.2 percent in the fourth quarter of 2011, and observers expect first-quarter numbers in mid-May to show another contraction, according to CNNMoney.

Germany isn't slashing public spending though severe austerity measures as its southern neighbors have done. But it relies on exports and consumers in economically troubled countries are buying fewer of its goods.

"We're learning just how bad austerity is during an economic downturn," said Hans-Joachim Voth, a professor of finance in Barcelona, according to CNNMoney.

It's not certain if the European Central Bank will offer much help and frugal German consumers are unlikely to stimulate the economy by spending more.

"German domestic consumption is not going to explode," Voth told CNNMoney. "Add to that the uncertainty in financial markets and the declining impact of the ECB's liquidity program, and it's not going to be pretty."

Because Germany is so large, representing a third of the euro zone's economic output, a recession there "will have quite a bit of an impact and clearly make it worse than expected," said Natascha Gewaltig, director of European economics for Action Economics.

Unemployment in the 17-member euro zone rose to 10.9 percent, the highest since the euro was created in 1999, according to the AP.

Increasing unemployment may persuade euro zone leaders to back away from austerity and seek more growth-orientated strategies. Even German leaders, who have advocated austerity most aggressively, may lose its enthusiasm for austerity if a recession hits that country, according to the AP.

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