Das sinking sound
Europe’s leaders can no longer rely on the argument that German resilience will cushion the blow to the continent from the worst global recession in just about anyone’s living memory.
Germany’s economy, Europe’s largest, is now officially confirmed as the basket case of Europe, thanks to a plunge in demand for high-tech goods, stagnant domestic demand, and a strong currency.
Having shrunk by 2.1 percent in the fourth quarter alone compared with 1.5 percent for the 16-member euro area, Germany will hold for a brief period over the weekend the dubious title of the fastest contracting economy in the developed world.
That is, until Japanese GDP data are published on Monday.
Trading floors in Tokyo must be bracing for a very ugly morning indeed. Already expected to shrink by 3.1 percent on the quarter — or a staggering 11.7 percent if stretched over an entire year — the risks are high that the hole in the world’s second largest economy turns out to be even bigger.
Pioneer’s decision on Thursday to cut 10,000 jobs and exit the business of manufacturing flat-screen televisions was an ominous sign of just how quickly world demand is falling away for the high-tech manufactured goods that have made Germany and Japan famous.
And there is little reason to believe that with unemployment soaring across the globe, that demand will rebound any time soon.
German and Japanese policymakers gathering in Rome for the G7 finance ministers’ and central bankers meeting must be very worried that if there is no respite soon for the euro or yen, it will take a very long time to recover from this downturn.