A look at the German and Italian manufacturing sector


This is an economic article focusing on Europe, Germany and Italy

Alex Pearcy-Caldwell writes about Europe, Germany and Italy in July 2019

 

This article covers some information on America and China written on a separate article which you can read here.

General Europe

In Europe there are many high ticket items produced by the countries located on the continent, and as a result all major economies like Germany, France, UK and Italy have either experienced slow growth or have began heading into technical recession. While the uncertainty factors like Brexit and Trump’s trade war with China and other competitor countries have also caused businesses to stop investing and spending, waiting for clarity on what will be the out come of these events.

The European Union has some member states not fully recovered from the previous recession caused by the 2007 financial crisis leading to already weak economies which can not withstand another recession in their current state. With most countries operating on record low interest rates already and European banks still operating on a 1% asset ratio against money they lend out, compared to the 10% US banks and the 5% UK banks must operate with. Meaning the Eurozone has a risk of a complete financial collapse if struck by another recession, an event which will likely decimate the fragile economies like Greece, Portugal and so forth, with the bigger European economies like UK and Germany not being able to bail them out like in 2008.

Germany

Further, this is not helped by the fact that the German economy which is the bedrock of the Euro zone economy has seen its industry sector begin a technical recession. This has also been reported by the Ifo Institute who released data showing Germany’s business climate index fell from 1.3 in June to -4.3 in July, this comes as German manufacturers put workers on to ‘short time’ meaning workers operate on a 4 day working week rather than a 5 day week, leading to less economic output from Germany.

This will have a knock-on effect as workers from the manufacturing sector will have less disposable income, affecting the income streams of other sectors in Germany. This will lead other sectors having to cut back on employees due to the loss of demand caused by the less well of manufacturers.

Italy

Meanwhile Italy, an economy struggling with debt problems of around €2 trillion, around 130% of their GDP, have just seen GDP fall around 0.21% in their second quarter report. This combination is unsustainable as unlike other economies who are out growing their debt, Italy’s debt is outgrowing their GDP, leading to a worrying future for them.

As the second largest manufacturing sector in the EU, Italy has been having a lot of attention drawn to their manufacturing where, for around 9 successive months, it has seen a decline in the sector. Although reports from Italy have mentioned that the rate of decline that was being experienced have slowed in the last month, with a market index of 49.7 the majority of manufactures are still reporting of contraction activity.

Conclusion

Please note, that the conclusion factors in our research on America and China written on a separate article which you can read here.

Our concluded from this research is that the world’s largest economies are in economic slowdown with economic growth slowing for even China and the US. Which shall lead to other countries suffering due to lack of investment, due to investors being unsure whether the economic slowdown shall turn to recession. While in the EU the leading manufacturing economies of Germany and Italy. Are already seeing their manufacturing sector in a decline for over 2 quarters of economic reports, meaning an interment recession is about to hit the sector leading to inevitable job losses for those sectors and immediate sectors from around the world related to them, leading to a general world recession soon.

End of article: German and Italian manufacturing sectors July 2019

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

This article was published on 15 August 2019

About the Author

Alexander Pearcy-Caldwell

Well-traveled and resident in two countries, Alex is working as I.T support Aisa Financial Planning and as a Investment researcher for Aisa International s.r.o. He writes about economic data and how it impacts on investment decisions.

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